(c) Can Stock Photo / tashatuvango August 21, 2018

OTT Monetization: Neflix’s Model is Not for Everyone

With Netflix’s impressive growth and a global base of 130 million subscribers, many OTT services have sought to emulate the industry leader. However, going the subscription route is not the only or always the best option for those launching OTT services.

Back in 2016, NBCUniversal launched SeeSo, a high-profile standalone comedy subscription service. However, after failing to generate a substantial subscriber base, it was forced to close its doors by the end of the following year.

NBC is now planning a different approach with WatchBack, a new service set to launch by the end of 2018. This service will not only be free but will reward its viewers by having them accumulate points redeemable for gifts. WatchBack won’t include original or exclusive content, which has been a key driver for Netflix and other subscription-based services, but will instead rely on content from its network channels including SyFy, Bravo, and NBC. In addition, WatchBack’s strategy represents a significant departure from SeSo’s desire to reach consumers who were cutting the cord and build a loyal audience. WatchBack will be positioned as a marketing outlet/feeder service for NBC’s traditional TV media networks, not as the ultimate destination for its viewers.

NBC is the latest example of a content provider navigating the tradeoffs between subscription models (SVOD) and advertising (AVOD) models for an OTT network. Both have important shortcomings and benefits, but in the long run a network’s content library and audience demographics will determine which model(s) are the best fit.

SVOD vs. AVOD
The SVOD model (think Netflix) offers the advantage of providing a predictable, recurring revenue stream but acquiring and retaining subscribers in today’s highly competitive “binge and bolt” market is no easy feat. Attracting and retaining paying customers requires a critical mass of high-quality exclusive and original content that is updated on a frequent basis. Building and maintaining such a library requires significant investment.

Ad-supported services are relatively easy and inexpensive to launch, but require millions of viewers on a consistent basis to generate significant revenue from ad views. In addition, OTT providers using this model are subject to fluctuating advertising rates and often don’t capture customer data directly since asking for that information creates friction and reduces the traffic they are dependent on to monetize.

Flexibility is Key
Success in the OTT space requires business models to be highly flexible. Services such as Hulu continue to evolve as market conditions and consumer needs change. In Hulu’s case, it began as a free ad-supported service and later added a subscription-based tier. Today Hulu is exclusively a subscription-based service that has expanded beyond on-demand programming with its live linear TV streaming service with 50+ linear channels.

Other publishers have embraced a hybrid approach, combining two or more OTT models; different combinations of SVOD, TVOD, and AVOD. This tactic allows services to test and optimize content type against different models to determine what works best. Motor Trend is a great example of a service that started with an ad-supported channel on YouTube, then launched a subscription-based service, and finally choose a hybrid approach that combined both.

It is also not uncommon for content providers to start out on ad-supported platforms such as YouTube. Its platform is free, channels are easy to launch, and with over 1 billion active users, it is well suited to finding and building an audience for your content. However, as a service’s audience starts to scale, it makes sense to look beyond YouTube to improve monetization via a subscription tier and build a direct relationship with one’s viewers.

Conclusion
As I mention in my new report, The Future of Niche OTT Services, there is no single model that works for all OTT purveyors. If executed correctly, single or hybrid models can all yield significant revenue. The best approach is to maintain flexibility to test and optimize different types of content with various models. This skill is critical for long-term success.

Brad Schlachter is a Senior Advisor for TDG and is a highly accomplished digital marketer and advisor for leading entertainment and technology focused organizations. Prior to TDG, Brad served as the marketing lead for Motor Trend OnDemand, the premier OTT destination for gearheads and was the VP of Marketing at Hallmark Labs for the launch of their family-friendly SVOD service. He currently lives in Los Angeles, CA.

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