Video Monetization Models 101: How to Choose the Right One for Your VOD Business

Video (on demand) killed the television star. The days of having to wait for a single time slot all week to watch your favorite show are long gone. People are switching to on-demand video services en masse, and this has proven to be a lucrative path for many content creators. Whether you already have an established VOD service and want to redefine your revenue streams or you’re just starting your online video platform, knowing what your video monetization models are is the first step to making the right decision.

Should you offer free content to viewers and rely on digital video advertising to generate income or would it be a better option to charge a small subscription fee? The answer lies in knowing which monetization models work for which types of businesses. Let’s take a closer look at the four main options in front of you: SVOD, AVOD, TVOD, and hybrid.

What Video Monetization Models Are Available

SVOD (Subscription Video on Demand)

Subscription Video on Demand, also known as SVOD, is one of the most common OTT monetization methods today. It encompasses a subscription-based pricing model with usually weekly, monthly, or yearly recurring payments. By signing up, subscribers gain access to the full library on the platform for the duration of their subscription. Using this model, VOD streaming platforms generate revenue from those subscriptions and are able to offer content to users without the interruption of ads. 

If you would rather not give up on the revenue potential that comes with ads, the TargetVideo platform is an easy way to set up and manage video ads shown with your content.

Still, all video-on-demand monetization methods have their pros and cons, and SVOD is no exception. There are several reasons why SVOD is a go-to monetization choice for many OTT streaming service providers:

• A large portion of consumers are prepared to pay a small fee to bypass ads; 
• Different subscription plans offer enough flexibility to tailor to consumers of different financial capabilities;
• OTT platforms tend to generate a steady stream of revenue from this video monetization model.

However, there are certainly some drawbacks to be wary of:

• According to Deloitte, the user retention rates on SVOD video-sharing websites are declining due to an increase in competition;
• Platforms have to constantly offer new content to retain their subscribers;
• This isn’t the ideal option for consumers who are only interested in one specific piece of media, such as a specific video or show.

AVOD (Advertising Video on Demand)

Advertising Video on Demand, commonly referred to as AVOD, is another popular monetization model. Using this method, video-sharing websites do not directly charge consumers for viewing their content. Instead, they create revenue from implementing various video ad formats into the platform, such as instream and outstream video ads. They do this using a video ad network that connects them to various advertisers. 

If you’re looking to launch this type of platform, it is important to understand the complex process that goes on behind the scenes. Setting up an AVOD model for your library involves much more than just connecting with advertisers. Luckily, there are service providers out there who can help you set up a stable, reliable, and easy-to-use ad-based monetization method. Using TargetVideo, you can make the most of the AVOD model. With us, you will gain access to advanced monetization features, such as video header bidding and ad podding, and you will be able to generate ad revenue with minimal effort on your side.

Although many consumers claim to stay away from ad-based video platforms, the fact is that some of the largest OTT apps and platforms use precisely this monetization model. Some reasons why AVOD might be the right choice for your OTT video service are:

• Offering content that is free to consumers is likely to attract a much wider audience;
• There is a variety of types of ads that you can tailor to your audience and maximize your revenue (be it in terms of length, skippability, choosing between VAST and VPAID ads, or the content of the advertisement);
• Signing up is easier and can often be done with an existing Google or Facebook account, depending on the platform;
• There is great revenue potential for both advertisers and publishers.

However, AVOD is not without its drawbacks. The main ones are the following:

• Advertisements tend to keep away a portion of potential content viewers;
• AVOD is not a viable option for smaller platforms with low usage rates;
• This monetization model requires more work in terms of ad personalization, ensuring compatibility with different OTT devices, and protecting publishers from potential ad fraud.

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TVOD (Transactional Video on Demand)

Transactional Video on Demand, also known as TVOD, is similar to a brick-and-mortar video store or rental. In other words, instead of paying a recurring fee or watching ads, consumers cover a one-time price for a specific piece of content. In this way, they gain either lifetime or time-limited access to the content they are interested in. Although this is the least-common video monetization strategy of the three, it is still the best option for many types of content.

Like SVOD and AVOD, this monetization model has pros and cons, too. The main advantages of TVOD include:

• Consumers pay only for the content they are actually interested in;
• TVOD is the most viable solution for small-scale platforms and businesses that are just taking off;
• It is the best option for fresh-release and exclusive content, such as live streams.

But TVOD is not for everyone. Its biggest disadvantages are:

• It is not a good solution for consumers who want access to a wider choice of content;
• Instead of relying on recurring payments as a relatively stable source of revenue, TVOD platforms have to constantly attract new consumers;
• One-time payers are less likely to show interest in any other content offered on the platform;
• It is more difficult — if not impossible — to implement free trial options to attract viewers.

Hybrid Model

The hybrid model is an umbrella term that encompasses a combination of any two or all three of the video monetization models above. For example, a live streaming platform might utilize the TVOD model for viewers who are only interested in watching one specific live stream, such as a baseball match. But that same platform could also have repeat viewers who want access to the whole Major League season without having to pay for each separate live stream. These viewers would benefit from the SVOD model. Similarly, a platform could combine CTV advertising for free-access content, along with subscription-based pricing tiers for viewers looking for more content and fewer ads.

If you’re interested in trying out a hybrid monetization model, TargetVideo can help you set up a reliable ad-based revenue stream. 

The advantages and disadvantages of hybrid video monetization models depend on the combination of models the hybrid includes. However, some of the biggest upsides to combining two or three video monetization models are:

• Making content available and attractive for a wider audience of different financial capabilities and interests;
• Higher revenue potential as a result of the wider user base and additional revenue channels.

On the other hand, the three main video monetization strategies don’t necessarily cancel each other’s drawbacks. In general, if you opt for a hybrid model, expect the following hurdles:

• Optimizing revenue streams to maximize income is more difficult when using a hybrid model;
• Implementing the hybrid model might be too complicated for smaller platforms and start-ups.

Let’s Recap: Which Video Monetization Model is the Best?

As you have likely concluded by now, there is no single solution that is the best option for any business. The right choice depends on a number of factors, such as the type of content you offer, the size of your platform and user base, the financial capabilities of your viewers, and much more. For example, while SVOD models offer a stable source of revenue, AVOD models are a better choice for media and news companies. 

The Future of Video Monetization: Programmatic CTV

It’s no secret that nobody on the consumer side of VOD platforms is a fan of ads. This is why industry professionals have to constantly look for ways to optimize the ad experience for their viewers. Programmatic video advertising is the latest buzzword in the industry, and it just might be the future of VOD monetization. With programmatic ads, the process of generating advertisements and serving them to viewers is automatized. But even more importantly, this model creates a much more personalized and enjoyable ad experience. 

In fact, according to Alex Hodge, the Director of Ad Sales at Warner Bros. Discovery, initial research has shown that, with programmatic advertising, consumers not only don’t mind being shown ads but actually seem to enjoy them.  Here at TargetVideo, we strive to keep up with the latest industry trends, and programmatic advertising is no exception. If this model sounds like what you have been looking for, give TargetVideo a shot. 

Give AVOD or the Hybrid Model a Try With TargetVideo

If you’re looking to start or grow your OTT VOD platform, you will need a reliable video monetization platform by your side. With TargetVideo, you can turn your content into a reliable source of income, use our Premium Demand to find the right advertisers for your audience, customize our HTML5 player to match the look of your platform, and so much more. 

Check out how you can launch your AVOD business with TargetVideo.

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