How to Make a SVOD/AVOD Hybrid Model Work
For many households across the world, streaming media is the norm. And, for an increasing number of cord cutters, it’s the primary means of accessing the programming they desire.
Streaming media is poised to lead the media and entertainment industry to strong growth over the next several years, according to the PwC Global Entertainment & Media Outlook 2022–2026 report. With a compound annual growth rate (CAGR) expected to remain between 3-6% and more streaming ad revenue being delivered to OTT platforms every year, one might expect a rosy picture for media companies.
It’s not that simple. As platforms proliferate and consumers exercise their freedom of choice in the market, streaming media is a more volatile space than initially forecasted. CAGR is expected to slow from 2021’s peak of 10.4% to as low as 3.1% by 2026, according to the PwC report.
Media companies invest several years down the line, which increases the pressure to see ROI, especially in the midst of an economic downturn. A globalized focus could help media companies see returns in countries of high consumer growth, such as Turkey, Argentina, India and Nigeria, but truly connecting with those audiences requires even more investment to understand the local market and keep on the right side of regulatory law.
While OTT usage is growing, it’s also volatile at a time when customer retention is a notoriously difficult challenge. Subscription fatigue is in vogue, and when a subscriber burns through the latest season of their favorite content, you’d better hope there’s another content option that retains them. Streaming platform sprawl has customers paying nearly as much as when they subscribed to cable, so they won’t hesitate to cut out the platforms that don’t make the grade for them, either because of the user experience, lack of appealing content, price or all of the above.
It’s no wonder, given this competitive backdrop, that some streaming media providers are thinking outside the box. Rather than follow one of the standard streaming media revenue models — subscription video on-demand (SVOD), advertising-based video on-demand (AVOD), or transactional video on-demand (TVOD) — some platforms are starting to blur the lines between the three, giving the subscriber more flexibility in their purchasing decisions.
Let’s learn how a SVOD/AVOD hybrid approach helps streaming media companies secure more earnings over the short and long terms.
Streaming media goes hybrid
Customers want affordable services, and media companies want revenue. Advertising traditionally subsidized a significant portion of the cost to produce and provide media content to audiences. Those ad dollars aren’t going away, but they also aren’t enough to cover the massive infrastructure and resources necessary to provide a wide array of content on a global scale — let alone turn a profit. And, as mentioned above, subscriber revenue is too fickle to rely on.
This is why streaming media platforms are upending their traditional forms of profit, seeking revenue from both customers and advertisers.
Netflix’s recent launch of a lower-cost, ad-supported service follows the trend established by other players in the market. Amazon implemented a blended approach, as customers receive access to Prime Video via an Amazon Prime subscription (SVOD), yet also serves some ads (AVOD) and on-demand rentals/purchases (TVOD). Hulu offers multiple subscription options (SVOD), including an ad-supported tier (AVOD), and also bundles with Disney+, ESPN+ and live TV. Speaking of Disney+, the platform is primarily subscription based (SVOD), but offers ad-free or ad-supported plans (AVOD) including bundles, and has also offered first-run movies available for rental (TVOD).
If these behemoths of streaming media follow a hybrid approach, you can expect other emerging competitors to follow the same trend. A recent report by Digital TV Research predicts continued growth in OTT subscriptions, with SVOD/AVOD hybrid subscriptions for Netflix, Disney+, Paramount+ and HBO Max alone forecasted to reach more than 370 million by 2028. These SVOD/AVOD hybrid subscriptions could make up the majority of those platforms’ subscribers in the coming years, and help propel them to success in global markets where customers have less disposable income.
Put simply, media brands are getting creative to win customers’ hearts, minds and wallets. When done right, it’s a win-win-win. Customers are empowered to pay for ad-free services or select a lower-cost option with more ads. Advertisers gain the ability to reach in-market customers. With an SVOD/AVOD hybrid approach, media companies collect a bit of revenue from both sides, while providing engaging, interactive ways to connect the two.
The evolution of the viewer experience
Subscriber expectations have evolved since the inception of streaming media, when instant access to a library of content was unheard of. Everything about the subscribers’ expectations has changed over the last 10 years, including the platform’s ease of use, cost, ad delivery, device availability, content choices, accessibility, performance, extensibility, payment options and so much more.
To some degree, an SVOD/AVOD monetization approach reflects changes in customer expectations around subscription options. Media companies that fail to offer different subscription options risk alienating customers and falling behind fast-moving platforms that cater to their customers. This is not a static problem; it’s a dynamic one, as subscriber preferences will evolve at a fast rate over time.
For example, what a customer is willing to tolerate from streaming media ads today — including hyper-personalization, length of ads, number of ads, relevance of ads, interactivity and ad-free subscription choices — might change in a year or two. The streaming media platforms that value subscriber expectations and proactively make changes will put themselves in a better position to compete. Likewise, those that stick with a binary monetization model that fails to provide a choice for the subscriber might get left behind.
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This evolution in strategy also positions some streaming media platforms for success in additional global markets, where subscriber expectations are even more pronounced. Let me provide you with a personal example. My family lived in Singapore for a few years, where advertisements are forbidden during children’s programming. After returning to the United States, it was a true shock to see the overwhelming ad presence for children’s programming — we were bombarded with ads for toys. Fail to meet the user expectation in either scenario (too many ads in Singapore or too few ads in the U.S.) and you’re likely to see a higher churn rate.
And it’s not all about subscriber preferences with ad delivery. In some cases, there might be legal protections or regulations for certain types of ads. An American audience surely knows that cigarette and tobacco ads are banned, as has been the case for more than 50 years. Alcohol ads are fair game in the United States, but not necessarily in other parts of the world, where those ads might be outright banned or require a disclaimer about the potential harm of consuming the product. Brands should know how their products will be perceived in certain markets, but it’s ultimately up to the streaming media provider to navigate these challenges in an increasingly connected, yet disparate world.
The complexities of modern streaming media delivery
As streaming media brands contemplate the evolving expectations for their industry and navigate global expansion at the same time, there are few guarantees on the path to success, save for one: one-size-fits-all global rollouts will not work. In each market where you must win subscribers’ dollars, you must also win their hearts and minds. This means navigating the complexities of individual and blended cultures, which means catering to their languages (spoken, written and, in some cases, signed), currencies, units of measurement, color preferences, date formats and so much more — not to mention staying on the right side of local media regulations, avoiding content agreement infringements and, you know, making sure the platform actually works on in-market devices, OSes and networks. A broad, blanket go-to-market approach is doomed to failure.
Rather, take each piece individually. In-market usability or customer preference studies can go a long way toward understanding how real customers perceive your platform. Understandably, streaming media providers want to customize the UI as little as possible, but there are still ways to cater to in-market customers. Present them with different content options, including local content, and see how they respond to it.
Verify that the advertisements are localized, relevant and that the interactive components function as expected. Ad dollars are a vital source of revenue — as such, there’s a strong business case for conducting ongoing manual ad testing around the world. Use in-market customer insights and telemetry data to gather insights on ad delivery. Manual VPNs and automation can’t sufficiently guarantee effective ad delivery. Test according to platform, campaign (such as live events or content launches) or specific issue to ensure a seamless ad experience.
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Include payment testing as part of your new-market launch as well. Not only must you continue to support old tiers of payment, but new tiers too (new currencies, local payment instruments, etc.) Just because Visa card payments process as expected in the U.S., for example, doesn’t mean that they will automatically be supported by your platform in a new market. Test it locally. Keep in mind that some markets overwhelmingly prefer forms of payment that might be of lower priority in the U.S., such as debit cards or even cryptocurrency. This is where your in-market research will pay dividends.
Protect your revenue globally
It all boils down to protecting and defending your revenue around the world, in new markets and established markets alike. Customer satisfaction is key — give them an opening to unsubscribe, and they will take it without a second thought.
The nature of streaming media means issues can occur on any permutation of devices, OSes, carriers and networks, and at any time of day. Internal testing teams might catch many issues, but you need an assist to identify the bugs you can’t see or replicate in-house.
The Applause global community of in-market testers and digital experts can shine a light on these blind spots. With more than one million members in our global digital network, Applause can summon the resources you need, when you need them. If you need support for a big live event, Applause can scale pre-event and live testing coverage to catch issues.
We work with some of the world’s largest streaming media brands to provide an effective layer of QA to validate both real customer experiences and in-market ad delivery, the industry’s two primary sources of revenue in this evolving media landscape.
With a little extra emphasis on digital quality, you can reduce churn, maximize revenue channels and launch confidently in new markets. Tell us about your strategic goals today.
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