Are you eager to know about How OTT platforms make money? In this blog, we will discuss how OTT platforms make money by streaming a variety of contents globally.
OTT streaming has provided audiences with a new method of content consumption and device independent viewing is the foremost reason for people largely shifting from traditional to digital mediums. According to a report by Statista, revenue is expected to show an annual growth rate (CAGR 2023-2027) of 10.32%, resulting in a projected market volume of US $467.30 billion by 2027.
Seeing this shift of eyeballs has made content creators and owners curious to know how OTT platforms make money. Before digging into OTT business model, let’s first have a look upon how OTT business is benefitting with the large number of audiences choosing online streaming over traditional.
How has the shift of audience to online video consumption benefited the OTT business?
During the past few years people have largely shifted from traditional mode of content consumption to online streaming. Over 60% of households with a broadband connection in the U.S have at least one subscription to a streaming service.
This provides a new opportunity for content creators and owners to reach out to a new audience base by coming up with new strategies. Live video streaming has also become one of the popular methods of video consumption and brands have started using live streaming technology to reach out and engage with consumers. Live video offers businesses the perfect opportunity to reach out to consumers in a timely, unscripted, and authentic manner. As more viewers are choosing online streaming, OTT businesses get a vast opportunity to provide quality contents and earn revenue with appropriate monetization models.
What is an OTT Business?
OTT business helps stream content over the internet bypassing traditional mediums like cable or satellite and lets you stream content on-demand over smart TVs, laptops, tabs, smart phones, etc.. It delivers the video content using the internet rather than traditional distribution methods of cable or satellite. Users can access a library of films, television shows, and other video content for a monthly fee. Some examples of OTT businesses include Netflix, Hulu, and Amazon Prime Video.
It’s a multi-billion-dollar industry that is creating a large movement in how people consume their content. If you’re entering the online streaming service in any way, OTT TV and mobile apps will definitely play a part in your business. According to a report by Statista, in the OTT Video segment, the number of users is expected to amount to 4,216.3m users by 2027. User penetration will be 45.7% in 2023 and is expected to hit 53.0% by 2027.
How do OTT platforms earn money?
1. Direct Advertising
Direct advertising can generate additional revenue through the sale of ad space or placements and allows you to choose which ads to display and how frequently they are shown, giving you greater control over their monetization strategy. It helps create opportunities to forge partnerships with advertisers and expand your reach and on the other side can also improve the overall user experience for your viewers.
Basically, direct advertising means delivering ads directly to the viewers across any device. Direct advertising usually refers to the sale of ad space directly to advertisers or ad agencies, rather than through an ad exchange or other intermediary. Advertisers typically pay a fee to have their ads displayed on the OTT platform, and the ad placements can take various forms, such as pre-roll ads that play before a video, mid-roll ads that play during a video, or banner ads that appear on the platform’s website or app.
OTT platforms can offer a variety of targeting options for direct advertising, such as targeting by demographic, geographic location, and viewing behavior. Advertisers can also use data from the OTT platform to optimize their campaigns and track the performance of their ads.
2. Various Monetization Models
Netflix, Hulu, and Amazon Prime Video are making huge profits using SVOD business model by offering a vast library of video contents that users can access anytime, anywhere, if they have an internet connection and a valid subscription.
There has been a significant increase in the demand for SVOD (subscription video on demand) monetization in recent years, as more and more people are cutting the cord and opting for streaming services instead of traditional pay-TV services. With the increasing number of devices that can access the internet, it is easier for people to access streaming services and watch content anytime, anywhere.
One of the biggest benefits of SVOD is that it generates recurring revenue for OTT platform owners. Instead of relying on one-time purchases or advertising dollars, SVOD provides a steady stream of income from subscribers who pay on a regular basis. Because subscribers pay a recurring fee, it can be easier for content creators to predict the ROI and is also beneficial for long-term planning and investment in new content.
YouTube, Roku Channel, and VUDU are some popular AVOD platforms that offer a wide variety of user-generated and professionally-produced content that can be watched for free with ads. These platforms have a mix of both free and paid content, however, the majority of them can be watched for free with ads.
The AVOD model is a great method for consumers to access a wide variety of content without having to pay for it, while also providing revenue for OTT platforms through advertising.
Instead of charging viewers to access the content, streaming platforms offer up ad space to advertisers to turn a profit. Ads can appear as skippable or non-skippable pre-roll ad, mid-roll ad or post roll ad.
AVoD is a good way to earn money for content creators who have just started out and low on budget and also individuals with a lot of content can avail this method of monetization. AVOD has proved to be a lucrative monetization model for content distributors with a lot of viewers coming and watching their preferred content for free and has already captured a huge portion of the streaming business and is rapidly growing than ever before.
To know more about AVOD, consider reading our blog – What is AVOD and how does it work?
The market for TVOD platforms has grown significantly in recent years, driven by the increasing availability of high-speed internet, the proliferation of connected devices, and the growing number of content creators producing high-quality original content. As major technology companies and streaming services like Netflix, Amazon Prime, and Disney+ continue to gain popularity, it may become increasingly difficult for new or smaller players to compete in the market. Additionally, the cost of producing and acquiring high-quality content is becoming increasingly expensive, making it difficult for some platform owners to turn a profit.
More people are opting for TVOD platforms as they allow users to only pay for the content they want to watch rather than subscribing to an entire service. Additionally, TVOD platforms typically offer a wider variety of content, including new release movies and older titles, which can be appealing to a broad range of viewers.
TVOD is typically divided into two types: EST (electronic sell-through) or DTR (download to rent). With EST, customers pay a one-time fee for unlimited access to a video. Though this is contingent on licensing restrictions. Unlike downloading a file to your device, streaming services do not hold the video so that you own the file.
DTR is similar to a traditional video store in that customers pay a fee, rent a movie for a set period of time and then return it. Most DTR companies are successful when they can offer access to premium content, such as a recent film release or a live sporting event.
With the TVOD model, OTT platforms receive a one-time payment for each piece of content that is rented or purchased. This can be a useful source of revenue model for viewers who do not want to commit to a subscription model and in turn is also beneficial for platform owners too. It allows them to generate one-time revenue from their content, while also giving consumers the flexibility to pay for only the content that they want to watch.
Hybrid OTT revenue model is gaining popularity among OTT (over-the-top) platforms as it allows them to monetize their content in multiple ways and reach a wider audience.
- It helps reduce subscriber churn and increase customer lifetime value
- By offering a mix of free and paid content, platforms can attract a large audience, while also generating revenue from advertising and paid content.
- The market growth of Hybrid OTT revenue model is positively impacted by the increased adoption of streaming services and the growing number of connected devices.
This business model is also attractive to advertisers, as it allows them to reach a larger and more engaged audience.
Additionally, the adoption of this model by major streaming platforms such as YouTube and Vimeo, has set a trend and has inspired others to adopt this model as well. This has led to an increase in the number of platforms and services offering a hybrid model, further driving market growth.
A Hybrid OTT revenue model combines aspects of both subscription-based and transactional video on demand (TVOD) models. In this model, viewers can access some content for free, with advertising, while other content is behind a paywall, requiring a one-time purchase or rental fee.
The market for multi-screen OTT services has grown significantly in recent years and one of the main drivers of market growth for this model is the convenience and flexibility it provides to users. With multi-screen capabilities, viewers can easily switch between devices without interrupting their viewing experience, which is especially important for on-demand content and binge-watching.
Additionally, the increased adoption of smart TVs and other connected devices has made it easier for consumers to access streaming content on their TV screens, further driving market growth. The growth of mobile device usage and 5G technology have also enabled the delivery of high-quality video on multiple screens and devices, boosting the adoption of the multi-screen OTT model.
The trend for multi-screen OTT is expected to continue to grow in the coming years as more people turn to streaming services for their entertainment needs and as technology advances to enable the delivery of high-quality video on multiple screens and devices.
The multi-screen OTT model refers to the delivery of streaming content across multiple devices, such as TVs, smartphones, tablets, and computers. With this model, users can access their favorite content on any device, at any time, and continue watching where they left off.
Business Models of Top 3 OTT Platforms
Amazon Prime Video
Amazon Prime Video uses a hybrid of SVOD and TVOD models when it comes to making money. It provides content that comes bundled with subscription, special screenings that come at a rental cost and additionally, it runs a variety of ads to generate revenue.
The primary revenue model for Amazon Prime Video is a subscription-based model, where users pay a monthly or annual fee to access the streaming service’s entire library of movies and television shows. This fee gives users access to the entire library of content, including original programming and licensed content, as well as other benefits such as free two-day shipping on Amazon.com and access to other streaming services such as Music Unlimited.
In addition to the subscription-based model, Amazon Prime Video also offers a transactional video on demand (TVOD) model. Users can purchase or rent individual movies and TV shows that are not included in the streaming service’s library, allowing them to watch the content without a subscription. This TVOD offering gives consumers more flexibility and choice in the content they watch, and gives Amazon another way to monetize their content.
Read more at: How Does Prime Video Make Money?
Netflix runs on a subscription-based video-on-demand (SVOD) model where subscribers can pay for a monthly plan and access a vast library of media—anytime, anywhere.
The subscription-based model is a core element of Netflix’s business model, as it allows them to generate a steady stream of revenue from a large user base. This revenue stream allows Netflix to invest in the production of original content, as well as the acquisition of licensed content, and to cover the cost of streaming infrastructure, marketing, and other expenses.
In addition to the subscription-based model, Netflix also uses an advertising model, but only in select regions, where they offer a free, ad-supported version of its service. But it is important to note that most of the revenue comes from the subscription-based model, as the Advertising-based model’s revenue is limited.
The subscription-based model has helped Netflix to grow its user base and become one of the top streaming players in the world.
HULU uses a combination of both subscription and advertising-based revenue models. The major revenue model for Hulu is a subscription-based model, where users pay a monthly fee to access the streaming service’s library of movies and television shows.
Hulu offers a few different tiers of subscriptions, including a
- Base “Hulu” plan that includes ads
- “Hulu (No Ads)” plan that allows users to watch content ad-free.
- The company also offers a “Live TV” plan that includes access to live television channels in addition to the on-demand library.
Hulu also generates revenue through advertising. Ads are included in the content on the base “Hulu” plan and on the “Live TV” plan, but not on the “Hulu (No Ads)” plan. Hulu uses both pre-roll and mid-roll ads, as well as product placement and branded content.
Hulu’s advertising model allows the company to reach a wider audience and generate additional revenue, while also providing marketers with an engaged and targeted audience.
Over-the-top (OTT) revenue models vary depending on the type of service being offered and the target audience. The revenue generated by OTT services has been growing rapidly, and is expected to continue to do so in the coming years. This is driven by the adoption of OTT services on devices and platforms of all types, and more and more users switching to streaming TV and video services, the shift towards subscription-based models and the emergence of advertising revenue through programmatic advertising. It’s important for OTT service providers to find the right revenue model that aligns with their target audience and business goals.
Muvi One is an enterprise-grade OTT streaming platform that allows you to stream both on-demand and live contents and monetize the same using various monetization models available.
With Muvi One, you can monetize your content from day 1 based on multiple monetization models. Muvi One also supports multiple payment gateways such as Adyen, Stripe, PayPal, Authorize.net, FirstData, InstaFeez, WorldPay, Braintree, Ecobank, Midtrans, Bank of Beirut, Paygate, PayU, CorvusPay, SOFORT*, GIROPAY*, Rave, PayTabs, etc. Based on your preference you can choose the payment gateway and allow your audience to pay using their local currency. You only must focus on creating quality content while Muvi One takes care of monetization with its billing engine. Take a free trial to know how Muvi can help you earn money through several monetization models.
How OTT Platforms Works?
OTT platforms are a type of streaming service that allows users to access a wide variety of content, such as movies, TV shows, live sports, and music, over the internet without the need for a cable or satellite subscription. These platforms typically offer a wide range of content from different sources, including original content licensed from studios and networks. As technology continues to evolve, OTT platforms are becoming more sophisticated and can deliver an ever-expanding range of content and features to users, making it a popular way to consume media.
What is AVOD?
AVOD stands for “Advertising-based Video-on-Demand.” It is a type of revenue model used by OTT (over-the-top) streaming services, where the service is provided to users for free, and revenue is generated through advertising.
What is SVOD?
SVOD stands for “Subscription Video-on-Demand.” It is a type of revenue model used by OTT (over-the-top) streaming services, where subscribers pay a recurring fee, either monthly or annually, to access the service.
What is TVOD/PPV?
TVOD stands for “Transaction Video-on-Demand.” It is a type of on-demand video service that allows users to purchase or rent individual TV shows or movies for a specific period of time. With TVOD, users can choose to buy or rent a particular piece of content and watch it as many times as they want within the rental period or ownership. This is different from SVOD (Subscription Video-on-Demand), which allows users to access a large library of content for a monthly subscription fee.
What is direct advertising?
Direct advertising usually refers to the sale of ad space directly to advertisers or ad agencies, rather than through an ad exchange or other intermediary. Advertisers typically pay a fee to have their ads displayed on the OTT platform, and the ad placements can take various forms, such as pre-roll ads that play before a video, mid-roll ads that play during a video, or banner ads that appear on the platform’s website or app.