The Aptitude Blog

AVOD, SVOD, TVOD or Hybrid – Comparing OTT Revenue Models

February 11, 2022
Posted by Aiden Wilkinson
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AVOD, SVOD, or TVOD?

The hottest question for any media business venturing into the wonderful world of streaming. There’s a lot to consider before deciding whether you choose Subscription Video on Demand (SVOD), Transactional Video on Demand (TVOD), Advertising Video on Demand (AVOD), or a hybrid across them all. In this article, I’ll present my own views on the pros and cons of each route, supported by market trends to help you make an informed decision when selecting a revenue model.

SVOD Benefits, Opportunities, and Threats:

Let’s get straight into SVOD, which makes up most of the video that I watch at home. Like most people, I have the usual suspects of Netflix, Disney+, and NOW (formerly NOWTV), with one or two others to complete my package. The main reason I’m ‘team SVOD’ is that I’m not the biggest fan of adverts that interrupt the programming as it takes me out of the viewing experience and connection with the show or film that I’m watching – adverts present a bad user experience for me.

I would also argue that these services get the biggest blockbusters and exclusive content much sooner than others, supporting the idea that content is king at the end of the day. Also, early viewing reduces the chance of seeing spoilers online!

There are some issues that you encounter with these services though; one of which is content, too much content – resulting in quantity over quality. Netflix perhaps falls into this trap by launching a ‘Netflix Original’ show or film what seems like every day – which isn’t surprising considering their 2021 estimated spend on originals was $5.21 billion. Another issue is payment processing. On several occasions, I would be locked out due to card payment failure (usually when I get a new bank card), and I’d get emails asking me to change the details. So, if you don’t regularly check your personal email, you may try to log in one day and be presented with a frustrating error message and eventually must manually add in your new details each time this occurs.

SVOD Market Trends

What does the media landscape say about SVOD services? It’s forecasted (1) that by 2026 there will be 700 million SVOD subscribers worldwide, up 35% (2) in the past two years. The core reason is people are subscribing less to Pay TV; gone are the days of 18–24-month TV contracts where 95% of the shows you probably didn’t watch anyway. Pay TV penetration (3) dropped below 60% in the US for the first time in history in 2020, and that number is likely to keep going down, so there may be no time better than now to launch an SVOD streaming service. The pandemic certainly affected content production for all major players, which has brought new ideas to the table to engage newer demographics and diversifying revenue streams. Netflix for example, have introduced merchandise and gaming as new tiers – will the other big players follow suit?

AVOD Benefits, Opportunities, and Threats

Services in this category have been growing steadily for several years now and a strong video business strategy has undoubtedly emerged. People love these streaming services because, well, who doesn’t love free content, right?! So, in theory, and practically, if somebody was this way inclined, they could have an entire library of great films, shows, and documentaries all for free, simply by picking 3, 4, 5 or 6 different AVOD services – the only cost would be the internet provider. I use some excellent services like YouTube and All4, the former of which is my favorite as you can skip (most) adverts after 5 seconds. In addition, they’ve worked hard in partnership with Google to personalize the ad experience in recent years.

However, the AVOD strategy isn’t without flaws, especially when it comes to mobile streaming. Connectivity (5) can be an issue for users on the go due to buffering of the video or advert not loading. This translates into a poor user experience and a direct loss in revenue for the service since the ad has not been presented to the user, the perfect lose:lose situation. As I speculated earlier, another downside for these services is they’re often overlooked by premium content providers, who are confident that consumers will pay for content without ad disruption. This puts AVOD at a huge disadvantage to a lot of potential customers who would rather pay for quality programming.

AVOD Market trends

Connectivity is changing with the emergence of 5G which will be a huge benefit to AVOD services due to their reliance on a good connection for users on the go. That said, the 5G rollout is happening slowly and is more common in the US and Europe compared to APAC – where AVOD is more prominent. AVOD spending is due to climb by an astronomical 144% between 2020 and 2026 to reach $66 billion (7). The COVID-19 pandemic has been the main catalyst, as some users were unable to work for very long spells which resulted in their TV entertainment having to come from free sources. It was reported (4) that 2021 was the best year for AVOD because its value in certain markets has risen above Pay TV broadcast. Some calculations even show AVOD generates $40 billion compared with $32 billion for SVOD in the US and Asia-Pacific market. As the world slowly but surely returns to “normal” will these new users stick or twist with ads?

TVOD Benefits, Opportunities, and Threats

Last but by no means least, TVOD. You could say this is the virtual version of a video/DVD store from the noughties. These services allow users to freely pick and choose whatever type of content they want and pay a fee to either rent or buy it. This business model is extremely popular with casual viewers who don’t want to pay a monthly fee for the content they ultimately won’t watch but instead would like to browse around for free, then selecting what they feel like at that moment. A benefit of this service is the power this puts back in the hands of the consumer. It could be argued that an SVOD or AVOD service with plenty of content is similar to Pay TV, where there’s plenty to choose from but still “nothing to watch”, albeit for a fraction of the cost. Another fact to note is that these services generally receive the rights to the newest blockbusters before they land on SVOD platforms, essential to viewers that want exclusivity.

A glaring downside of TVOD is the cost of the content. Generally, in the UK, for example, to buy just one film can range anywhere between $10 to $27, or even more on certain services. In the grand scheme of things, it’s not that expensive in isolation, however, if compared to a general SVOD monthly cost of $13-£20 for a whole catalog of shows and films, it does add up. For the service provider, retention can be a huge burden since they will likely come onto your platform, buy the content, and then leave after watching it, so having a steady, predictable income stream can prove tricky. 

TVOD Market Trends

Did TVOD (8) single handily save the cinema industry? Pre-2020, the most popular category for TVOD was arguably sporting events. NOW in the UK offered ‘matchday passes’ for viewers to freely move in, pay/watch, and move out of their service. Since the pandemic began and cinemas closed, TVOD changed (6) from only being popular with sporting events to growing in popularity with movies and live performances. This was the only way that films could get away with charging similar prices for consumers to watch at home as we would have at the cinema. For a while, this was coined PVOD (Premium Video on Demand) with Mulan on Disney+ (9) perhaps being the most popular at the time to go down this route – generating $35.5 million for Disney in the process.

Conclusion

It can be argued that it doesn’t matter which business model you opt for, as everything has its pros and cons. Figuring out which works for you, your forecasts, your content, and most importantly, your audience is key to success. Certain services have adopted a hybrid/aggregation model. Amazon Prime Video, for example, offers tons of content within the SVOD package, with additional TVOD purchases available, as well as the ability to subscribe to other SVOD services – all within the one app with one identity and one payment method.

For the user, I would argue SVOD is the most effortless transition from Pay TV because you still get premium content but for a fraction of the price, with no ads whatsoever; it doesn’t get any better than that for me, but what do you think?

References and related useful links:

Read our latest eBook on Generating OTT Growth Opportunities Through Subscription Technology to understand the tipping points.

References:

  1. Ultimate SVOD/AVOD/MVPD/OTT Guide
  2. Netflix Content Spend Article
  3. Global SVOD Forecasts Report
  4. SVOD, AVOD and Pay TV Market Figures Latest
  5. Why AVODS could lose video Streaming wars
  6. SVOD Versus TVOD Versus AVOD Article
  7. AVOD Set to Reach 66bn Article 
  8. TVOD Versus SVOD Video on Demand 
  9. Trends in VOD Service Monetization

Thinking about optimizing your OTT strategy? We’re here to help.

If you are reviewing your on-demand strategy, get in touch to arrange a demo of how we can unlock all the tools needed to succeed now, and in the future.

Contact our helpful team; Telephone +44 844 873 1418 or visit our contact us page.

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This blog post was written by:

Aiden Wilkinson
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