Here’s a look at the different video on demand (VOD) models and how to optimize your digital content strategy.
We just can’t seem to get enough of VOD’s myriad of models, and with good reason as they are entrenching themselves within the content ecosystem as a truly viable means of making money online. MarketsandMarkets forecasts the VOD market will grow from $25.30 billion in 2014 to $61.40 billion in 2019. This represents a compound annual growth rate of 19.4% during the forecast period.
In terms of regions, North America is expected to be the biggest market in terms of revenue contribution, whereas Asia-Pacific (APAC) and Middle East and Africa (MEA) are expected to experience increased market traction. We all know about Netflix and Hulu and—of course—Canadian home-growns CraveTV and Club Illico.
Here’s a breakdown of how these models work, what to consider when choosing one, and why a VOD option is as imperative as it is inevitable in the current ecosystem.
Three Main VOD Models
There are three main classifications of VOD models, and these are defined based on how the rights holder earns its share of the revenue, as opposed to the methods used to deliver the content to consumers. They are:
- Transactional VOD (TVOD): The rights holder receives a one-time payment from the consumer for on-demand access—either rental or ownership—and through a variety of delivery methods.
- Subscription VOD (SVOD): The rights holder receives a monthly fee from the consumer, like a membership, in exchange of access to a buffet of content.
- Advertising-based VOD (AVOD): The rights holder receives a share of revenue from platforms that serve ads against content that the consumer can view free of charge.
A Detailed Look at Each Model
1. The transactional model
The transactional model is essentially a rental, whereby the consumer pays a certain amount to access a unit of content for a specified period of time.
The price point can range between $1.99 and $15.99 and the period can vary from 48 hours to 30 days. Delivery methods can also vary from hotels/airlines, through cable providers, satellite, OTT or IPTV mediums. Also included within the transactional model is Electronic Sell Through (EST), also known as Download to Own (DTO), which provides digital sale with perpetual unlimited viewing.
Players using this model include iTunes, Vimeo, and Amazon (which acquired LoveFilm in 2011), as well as platforms Vudu, Blinkbox, and Cinemanow (Update: note that Cinemanow closed in 2017, but here are some of the best alternatives to the platform).
2. The subscription model
The subscription model was popularized by Netflix. This is ironic seeing as the company started with a DVD-like transactional model.
Standard subscription fees have settled between $8.99 and $9.99, with price wars occurring in some territories in the $3.99–$5.99 price range. Analysts debate if this model is problematic for the studio system, as it lowers the profit margin on products that are very expensive to create and very cheap to distribute.
Netflix, Amazon Prime, and Hulu Plus lead the market—with many niche players evolving like Fandor and Mubi. Although Netflix does not officially release data, insight from Roger Jackson at Kinonation references that commissions of $5K for a 2-year non-exclusive license is common, with a negotiation of $10-20K considered average, and an excellent but uncommon $50K negotiation being possible.
For signature tent-pole commissions with major stars attached or driven by studios, payment from Netflix can range anywhere from $500,000 to $1M. Payments are typically made quarterly and performance metrics are not unveiled to the public.
3. The ad model
The ad model is continually becoming more sophisticated with options including pre-roll, mid-roll, or post-roll; fullscreen or bucketed; skippable or not; and many other formats. Video advertising services like Brightroll, SpotXchange, Auditude, AdoTube, Videology, YuMe, AOL Oneand Google Adsense provide the media buy/ad exchange without the need for a sales team.
Best practices are still evolving, but in general, the ad revenue is split between the platform and the rights holder, and a distributor/aggregator if one is used. Most deals are 50/50 or 70/30 (in favour of the content producer), with YouTube providing one extreme of 45/55 (not in favour of the producer) and Vimeo taking a radical step of 90/10 (in favour of the producer).
4. The hybrid model
Although operating beyond VOD, there are three additional nuances worthy of mention within the ecosystem. First are the hybrid options that combine subscription VOD and transactional VOD such as UK’s Sky TV, or Canadian CraveTV. Roku, Xbox Live, and Sony’s Playstation Vue form an auxiliary component to the audience’s viewing experience by partnering the physical technology with the VOD platform.
Finally, there are also a number of self-supported services such as FilmBuff and DotStudio, where content creators can upload their own material and benefit from hosting, platform and marketing services.
The VOD Mixology Recipe
Obviously, the ideal digital strategy will depend heavily on the type of content to be distributed, whether or not a ready digital audience is identified, and whether exclusivity or geo-blocking are required. Content that can be maximized on multiple business models will definitely have a greater chance at long-term monetization. In a world where the ‘release window’ is compressed, it is quite possible to simultaneously orchestrate an optimal digital release in multiple business models.
A transactional model will serve best if the content already enjoys high discoverability. In this case, audiences are aware and will deliberately seek the content. Advertising-based models work best with social tools, SEO optimization, curation or community management to assist with discoverability. For the rights holder, properly instituting Content ID can make a world of difference for receiving payout for content that is already available online.
One of my clients at Crowdlinker saw revenue increase from nothing to $500,000 per month from 329 million views, within a year of implementing Content ID for YouTube. A good strategy here would be to identify back catalogue for rights clearing to exploit potential digital advertising-based revenue. Subscription VOD can be difficult to access without an aggregator, so although the payout may be steady, there is always a cut taken by the aggregator as well as no guarantee that the content will reach its target audience. Wendy Bernfeld of Rights Stuff gives the following recommendation on using an aggregator: make sure it’s focused on, savvy in and committed to the new media exploitation and not just a contractual rights grab.
As a rights holder, there is nothing stopping you from utilizing as many VOD models as possible, except for any prior agreements that may withhold specific rights. Inform yourself before agreeing on the method of delivery, device compatibility, window compression and how revenue is defined. The ability to exploit each non-exclusive model can become a small but steadily monetized stream in this new digital licensing ecosystem.
Impact and importance for Canadian producers
There are three developments that are crucial to consider for Canadians working in this space. The first is the CRTC’s mandate to unbundle, the second is the movement toward requiring SVOD services to be available without a cable package and the third is the recent slew of broadcaster grabs of multi-channel networks (MCN).
With the advent of unbundling, on which I wrote previously, comes the threat of the dissolution of the niche specialty channel. In a prior world of cable packages, the niche specialty was considered an ‘immeasurable.’ It was included with premium channels to balance the package, and while there are always audiences that gravitate toward niche content, the reality is that as broadcast channels, they are hardly stand-alone fare. Content that used to know its way home to a niche specialty terrestrial channel may very soon need to wander over to niche specialty digital channels that exist strictly online. The advertising-based or transactional model would be extremely useful here.
The judgement forcing Crave TV to go full subscription without requiring a cable package will mean that these services may essentially provide homegrown competition to Netflix without the CRTC needing to regulate a potential monopoly. In order to compete genuinely, these local SVODs will need to diversify their program offerings and scale up to an international content standard. As such, a major opportunity is generated for content that may not have originally passed the broadcast green light for a license fee.
The recent round of mergers and acquisitions have represented horizontal instead of vertical partnerships (e.g., Corus and Kin). With the acquisition of an MCN or multi-platform network, broadcasters are securing:
- Direct access to an audience that no longer even notices terrestrial signals;
- Their justification for a rights grab of future streaming licenses.
After all, how can a producer counter the fact that the broadcaster has no intention of exploiting a digital license if the broadcaster owns its own digital platform? In this case, content creators will need to be vigilant with respect to the exclusivity arrangements that may or may not allow them to carve out and manage their own AVOD/TVOD/SVOD in the event that content also has a broadcast license.
In all aspects of this highly competitive market, VOD stakeholders are ebbing and flowing to build solutions that are rich in nuanced features such as personalized recommendations, ease of device transition, enabling time-shifting, and providing viewers with more tailored metadata and ways to connect with other viewers in real time.