OTT business model is the simplest business model to explain, seriously, why because most of you have already used it either in the form of premium or freemium.
What is the Business Model of OTT Platforms? Complete Guide
Before we directly talk about the business model of OTT platforms, let us take a trip down memory lane. Do you remember the days of traditional movie schedules, when you would madly wait for your favorite movie to air?
How many times did you find yourself watching your most awaited movie only to be interrupted by an ad saying, “This is the best tire for your car”? It was frustrating especially when you were on the edge of your seat just as the hero was about to show the moon to the villain!
Were you able to give feedback about that interruption caused by the advertisement or about the overall movie outside of your family or friend circle? Probably not, right?
This is where OTT (Over-the-Top) takes an entry to
- Give you freedom to express your views about the movie,
- showing you content what you want not the platform
- Watch content anytime and anywhere
- Ad-free subscription plans
- Give you access to diverse genres, languages & international content
These are some benefits of OTT platforms, now let us talk about what is the business model of OTT platforms and monetization strategies for OTT services?
What are OTT Platforms?
An OTT (Over-the-Top) is a type of business model in which content is directly delivered to viewers via the internet, bypassing traditional TV channels and cable networks.
There are a number of OTT platforms available online. Some are available in multiple countries like Netflix, Hulu and Disney+ Hotstar, while others are only available in a specific or domestic country like MX Player.
These OTT platforms deliver content like movies, TV shows, web series, documentary & other forms of media content directly to users’ devices. This means that users can watch their favorite movies on their smartphones, laptop or tablet whenever they want.
Benefits of OTT Platforms For Users
The beauty of OTT platforms lies in their flexibility. Viewers can choose what they want to watch, when they want to watch it & how many times they want to watch it. This flexibility removes the limitation of traditional schedules set by conventional TV channels.
‘In the film industry, the internet did not exist then but it does now and this is what allows OTT platforms to deliver what users want’
OTT stands for Over The Top, hold on what this actually means? Over The Top in which sense? To understand this, we need to understand how content was distributed before the introduction of OTT platforms.
Before the entry of OTT platforms people watched Cable TV. Cables were laid out & you had to attach it to your TV to watch shows and movies. If we fast forward a little bit then, satellite TV comes where you could put up an antenna at home. In fact you might remember the dishes on your balconies or rooftops to receive signals and to convert that signal, a set-top box had to be placed near your TV.
This introduction of satellites gave people larger choices of a large variety of channels they could watch at home easily.
Again fast forwarding some more years, then comes the era of the internet where we noticed exponential growth in content distribution channels like websites. Following this transition to web portals and websites, ott platforms take entry.
According to reports, it was in 2009 that Netflix began partnering with Smart TVs and gaming consoles to reach a broader audience. This move allowed Netflix to tap into the extensive viewer base that traditional TV channels had built over the years.
For your knowledge, Netflix is not a new company; in fact, it was founded even before Google. Netflix was established in 1997 by Reed Hastings and Marc Randolph. Initially, Netflix was a platform where people could rent movies exclusively through the internet.
What is the business model of OTT platforms?
Let us practically understand the model of OTT platforms, OTT platforms business model is nothing but a direct connection with customers.
In traditional tv channels the biggest problem was the schedule set by the tv channels like users users will have to watch movies and shows according to the channels even users could not skip or replay the scenes which is obviously frustrating.
With the rise of mobile devices, users’ attention shifted to mobile which led to a drop in watch time on traditional television. And guess what? Visionaries like the founders of Netflix saw this opportunity, seized it and empowered consumers to watch what they want, when they want & where they want.
Then they came up with an OTT business model which distributes the power of watching content in the user’s hand by eliminating the third party distributor.
These distributors are also the gatekeepers of most important information about the audience like:
- Viewership Data
- What type of content user is watching
- Geographic Location of the consumer
- Which device is the user using
- How the consumer is engaging with the content
How Do OTT Platforms Work?
OTT platforms operate primarily through two main methods of content acquisition:
1. Licensing Content
Licensing content is the one working model of OTT platforms in which these platforms acquire content by directly purchasing streaming rights from production houses.
When a production company creates a film, the OTT platform pays for the rights to stream it, adding the production to their content library. Usually, OTT platforms license movies, web series and documentaries to offer a diverse selection of films and shows to their audience.
2. Self-Production
The second method is self-production. Many OTT platforms invest their own resources to create original films and web series.
This is a preferred choice of OTT platforms to have free content on their content. Most self-production by OTT’s are exclusive content to enhance their catalog and create a unique brand identity to attract subscribers.
So, OTT platforms work by using a dual approach to deliver a rich variety of content directly to the users.
How Does OTT Business Make Money?
OTT platforms make money by using four main ways of monetization which can be called the four models of OTT platform monetization.
AVOD - Monetization Method of OTT Platform
AVOD stands for advertising-based video on demand, which is used by the majority of OTT platforms. In this model, consumers can watch movies, TV shows, and web series for free, but they have to watch advertisements on these platforms. Ads can appear at the beginning, in the middle, or at the end of the media. You may also encounter ads in the middle of the films.
If there’s a large audience consuming content on a platform, companies looking to promote their products or services pay these platforms, which do not charge the consumer but show ads from those companies. This is an entry-level model that OTT platforms can use to reach a large audience. By offering free content and services, they can attract as many customers as possible to their platform.
The biggest example of OTT’s using advertising-based video on demand models is YouTube and MX Player.
SVOD Model
SVOD means subscription Video On Demand (SVOD) model in which users have to pay a subscription fee to access content on the platform. Typically, this fee is charged monthly and popular platforms like Netflix, Prime Video and Disney+ Hotstar utilize this model effectively.
AVOD (Advertising Video On Demand) currently generates about 50% of global OTT revenue.
TVOD Model
The third model is TVOD which means transactional Video on Demand in more simple terms is pay per view. If you want to watch content on OTT platforms then you only need to pay a fixed fee for it.
iTunes, Reliance’s Big Flix and Amazon Prime use this model. This is similar to how you have to pay for a show in the cinema halls. Here, if you want to watch a specific film at home, you have to pay for that only.
Hybrid Model of OTT Platforms
The Hybrid Model is the fourth monetization model of OTT’s which is a combination of AVOD, SVOD, and TVOD in different configurations.
Key Combinations in the Hybrid Model:
AVOD + SVOD
This is one of the most common combinations used by ott platforms to make money in which they provide free content but with advertisement as well as providing option for subscription to remove ads.
For example, platforms like YouTube and MX Player allow users to watch content for free but also have the option for subscriptions to remove those advertisements.
SVOD + TVOD
In this combination, subscribers pay a monthly fee for general access but are required to pay an additional fee for new or exclusive releases.
Amazon Prime Video is the best example of this model, it allows users to access a huge library of content and at the same time including options to rent a specific movie that may not be included in the subscription.
Well, these are the 4 methods how OTT makes money but more practically speaking there are only two ways how OTT’s generate income:
From advertisers
OTT’s make money when advertisers pay to display their ads during the viewing experience.
From the audience
When viewers choose to pay a subscription fee which falls under the SVOD (Subscription Video On Demand) model.
Conclusion on How OTT Platforms Works
These platforms often offer a subscription model, where you pay a monthly fee for access to a wide range of content. Some also use a pay-per-view model or offer free content with ads.
In short, an OTT business is all about delivering content directly to the consumer over the internet, making entertainment more accessible and customizable than ever before.
Frequently Asked Questions About the Business Model of OTT Platforms
How does the OTT platform earn money?
There are primarily two main ways OTT platforms earn money: advertisers and audience subscriptions. In the advertising-based model (AVOD), OTT’s provide free content but with ads placed by companies promoting their products or services.
On the other hand, in subscription-based models (SVOD), users pay a monthly fee for ad-free access directly to the platform.
What is the distribution model of OTT?
The distribution model of OTT platforms is to deliver content directly to the viewers via the internet bypassing traditional cable or satellite services.
What is the structure of the OTT platform?
The structure of an OTT platform includes:
Content Library: Huge collection of films, TV shows and original programming.
Monetization Mechanisms: Different advertising models of OTT platforms like AVOD, SVOD, TVOD, or hybrid approaches.
Content Delivery Network (CDN): Technology to deliver that content to the end-consumer smoothly.
Which OTT platform is in profit?
As of recent reports, platforms like Netflix and Amazon Prime Video are profitable within the OTT space. While on the other hand many newer platforms are still investing heavily in content creation so let us see what happens next.
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