Audiences are increasingly cutting the cord and consuming media through new means thanks to the growth of over the top (OTT) broadcasting. Today, people can enjoy films, shows, courses, and other content in more ways than ever before.
Content creators need to optimize how they distribute – and make money from – the media they share. The wrong distribution and monetization model could result in leaving money on the table, while the right one could lead to a profitable, scalable business.
Subscription video on demand (SVOD) is a video monetization strategy many companies are leveraging to secure a steady, predictable revenue stream from their customers. Can your business benefit from implementing an SVOD monetization model? Is SVOD monetization the right strategy for your goals? Keep reading this guide to SVOD monetization to get the answer to those questions and others.
Table of Contents:
- Video Monetization Basics
- What is SVOD?
- Pros and Cons of SVOD Monetization
- When to Monetize with SVOD
- SVOD Examples
- Use Cases for SVOD
- Mixed Revenue Models
- How JW Player Supports SVOD
Video Monetization 101
If you read our article on AVOD monetization, then you already know what we’re going to discuss here and can skip ahead to the next section. If you haven’t read that guide yet, stick around to learn about the three main monetization models for OTT media: SVOD, advertising video on demand (AVOD), and transactional video on demand (TVOD).
With a subscription video on demand (SVOD) monetization model, customers pay a fixed fee on a regular (usually monthly) basis to gain ad-free access to a content library.
Netflix is one the best-known examples of a media company that generates revenue through subscriptions. Subscribers currently pay $9.99 per month for a basic plan, $15.49 per month for a standard plan, or $19.99 per month for a premium plan. In exchange for this monthly payment, they can watch all of the shows and movies available in Netflix’s digital library.
With an advertising video on demand (AVOD) monetization model, audiences have to watch ads before, during, and/or after videos to gain free access to them.
One of the most popular examples of a company that relies primarily on an ad-supported business model is YouTube. Audiences that don’t subscribe to YouTube Premium have to watch ads during videos.
Transactional video on demand (TVOD) monetization is essentially a pay-per-view model. When someone wants to watch an episode of a TV show or a movie, or access a pre-recorded workout class, they need to buy or rent it. Consumers can rent content for a fraction of the price of purchasing it, but then can only enjoy it for a limited amount of time. Most businesses that leverage TVOD apply it to newly released shows or films, then make them available through AVOD or SVOD as time passes.
While Amazon Prime Video relies mostly on subscriptions, customers can also buy or rent some shows and movies that aren’t included in Prime Video. Buying a movie usually costs around $20, while renting the same movie costs about $6. Customers have a month to start watching the movie and 48 hours to finish it.
Now that you know the basics of the three main video monetization models, let’s explore SVOD monetization in depth.
What is SVOD?
SVOD stands for “subscription video on demand” and is a way to make money from over-the-top video streaming by charging customers a recurring fee. As long as they’re paying the fee, customers have access to a whole library of on-demand video content, as opposed to live streaming.
Businesses benefit from this model by having consistent, recurring revenue from subscribers, while customers benefit from having access to a large library. Because SVOD is more expensive than AVOD platforms and presents a longer term financial commitment than a pay-per-view basis for customers, SVOD-based businesses have to invest in producing fresh content to stay competitive and provide value for subscribers.
Netflix is almost synonymous with SVOD. Customers pay a monthly subscription fee to watch movies and shows from Netflix’s impressive library.
Hulu is another example of a major player in the OTT streaming space that offers compelling content in exchange for a monthly fee.
Pros and Cons of SVOD Monetization
Could SVOD monetization be right for your business? These pros and cons can help you decide.
SVOD services that offer a free trial have high conversion rates (58%), which means nearly three in five tentative customers turn into paying customers when the trial ends. This conversion rate shows that a free trial is a successful method for attracting customers.
Because SVOD is one of the most popular monetization models, customers will be receptive to and comfortable with committing to a subscription to access your content library.
With an SVOD model, your business gets a regular injection of revenue from customers each month, which can make it easier to manage cash flow. This also means that rather than trying to attract customers every time you release a new show or movie, like you would with AVOD services or TVOD models, you can focus resources on creating new content to retain subscribers.
Finally, SVOD paywalls gate content and create exclusivity. Exclusivity creates a feeling of scarcity, which is a powerful marketing psychology tool. When something is exclusive or scarce, it seems more valuable, which makes customers want to subscribe.
While SVOD-based businesses have relatively high conversion rates after a free trial, they still fail to convert 42% of customers. This means that two in five customers could be bouncing around from free trial to free trial on other platforms, or creating new accounts on your platform and abusing the trial. Issues like this might have been the reason Netflix dropped its free trial in the U.S.
Customer churn is a challenge for SVOD services. An SVOD model works great when you can retain customers. However, most SVOD OTT companies let customers sign up without a commitment, which means they can cancel their subscriptions at any time. With no built-in way to retain customers and revenue, SVOD companies have to constantly create new content to keep customers engaged. Producing or licensing shows, movies, classes, games, etc. is very expensive.
Another challenge SVOD companies have faced is password sharing, which leaves money on the table. Many subscribers to Hulu or Netflix, for example, share their login information with family and friends to avoid having to pay for their own subscription. These providers attempt to combat this by limiting the number of devices on which their content can be watched at the same time.
The downside of SVOD being such a popular business model is that there is so much competition in the space. With few subscribers having unlimited entertainment budgets, they have to decide which of dozens of subscription-based platforms they’re going to join.
Because there’s so much competition in the SVOD sphere, and customers have limited budgets, content creators have to keep their prices competitive. This need places a limit on how much you can charge customers for your product. If you’re spending a lot more on your content than your competition but can’t get away with charging much more, you could go bankrupt.
When to Monetize with SVOD
A subscription-based video on demand monetization model is best for companies and organizations that have a large library of niche content and/or have the resources to constantly create new content.
As one of the most popular OTT monetization models, SVOD is nearly synonymous with streaming. Many companies use SVOD to delight customers and keep them coming back for more. Look to these subscription services for inspiration:
- Netflix: Netflix is one of the pioneers of SVOD OTT streaming. The media company has a massive library of movies and shows that includes both original productions and licensed content. Ad-free plans start at $9.99 per month.
- Hulu: Considered one of Netflix’s top competitors, Hulu is the SVOD platform that first introduced a hybrid AVOD-SVOD model to cut subscription costs. Hulu also produces original content and has access to ABC’s programming. Ad-free plans start at $14.99 per month.
- Amazon Prime Video: Ecommerce giant competes in the SVOD streaming space with Amazon Prime Video. Subscribers can watch original and licensed content with a standalone subscription, as part of their Prime membership, or by paying per view for shows and films that aren’t included in Amazon’s library. A standalone Prime Video subscription costs $8.99 per month.
- HBO Max: Known for producing some of the most highly acclaimed programming, HBO entered the SVOD OTT space several years ago with HBO Max. The platform includes HBO originals, Max originals, and licensed programs. Ad-free subscriptions start at $15.99 per month.
- Disney+: Media monolith Disney made a big commotion when it entered the streaming space. It charges $10.99 per month for ad-free access, and also has deals on bundles with Hulu and ESPN.
- Apple TV+: Unlike other SVOD streaming platforms, Apple TV+ only offers original, exclusive content, like Ted Lasso and the Morning Show. Ad-free subscriptions start at $6.99 per month, which is less than competitors to make up for its smaller library.
Use Cases for SVOD
SVOD monetization is best suited for the following scenarios:
- You already have a large library of existing content.
- You are creating new content regularly, which you can use to retain customers.
Hybrid Revenue Models
While we’ve talked about a subscription-based monetization model as an isolated option, you can benefit even more from SVOD by combining it with AVOD and TVOD services. In fact, many of the most successful content companies use hybrid revenue models to meet their audiences’ needs without leaving money on the table.
Whether a customer’s priority is binging shows offline or reducing their entertainment spending, a mixed revenue model can help you maximize sales.
SVOD Model With an SVOD-AVOD Hybrid
Subscription-based platforms have recently begun introducing subscriptions with ad breaks for a lower price. With this new model, companies like Hulu and Netflix can now capture revenue from people who would otherwise forego their services, or may not be able to afford their standard pricing model.
Let’s check out how Hulu is implementing this hybrid model. Its primary business model relies on charging customers a monthly subscription, starting at $14.99 per month. Hulu now also offers Hulu (With Ads), which reduces the subscription to $7.99 per month, but introduces ad breaks.
This model is a win-win for Hulu and its customers. For almost half the price of a regular subscription, customers can watch all of Hulu’s programs. Hulu can retain some of the revenue lost from this discount through ad revenue.
Netflix has a similar offering, with a basic plan with ads going for $6.99 per month and basic, ad-free plans starting at $9.99 per month.
Freemium Monetization Model
Another way to combine SVOD with other monetization models is to offer a free sample of your content, then use it to attract viewers to a subscription or pay-per-view model.
You could, for example, let people watch the first 10 minutes of a film or first episode of a TV show for free with ads. Then, they would have to buy or rent the content, or subscribe to your platform, to finish watching the season or movie.
SVOD As an Upgrade
An advertising-based video on demand model is a great way to get audiences to your platform, but most find ad breaks disruptive. In fact, 41% of consumers are happy to pay to avoid ads. Offer a subscription as a premium viewing option.
Take inspiration from YouTube, whose base business model is AVOD-based, but offers an ad-free experience to YouTube Premium subscribers. For $11.99 per month, audiences can avoid ads on the platform.
How JW Player Supports SVOD
As a comprehensive video platform, JW Player surpasses SVOD, AVOD, and TVOD to help you lure in an audience and keep them coming back for more predictable, regular revenue. With fast, high-quality video delivery, JW Player’s streaming services let your customers watch your content on whichever device is most convenient for them. JW Player also optimizes your fill rate and CPMs to keep audiences watching, resulting in more sales for you.