OTT (Over-the-Top) Business Model: A Comprehensive Review

Editorial Team

OTT (Over-the-Top) Business Model

The OTT (Over-the-Top) Business Model has transformed the way we consume video content, disrupting traditional cable services and revolutionizing the entertainment industry. Streaming services like Netflix, Hulu, Disney +, Apple TV, and Amazon Prime have gained immense popularity as they provide users with the freedom to watch what they want, when they want.

Internet users today spend an average of 38 hours per month watching OTT videos on mobile apps, and 65 percent of viewers consume content on TV apps, emphasizing the importance of catering to smart TV platforms. And with the compatibility of over-the-top platforms across multiple devices, users can enjoy their favorite shows and movies anywhere and anytime.

One key aspect of the OTT business model is the subscription-based approach. OTT services offer users ad-free content for a monthly fee, giving them more control and an enhanced viewing experience compared to traditional TV or even popular video-sharing platforms like YouTube.

Additionally, large OTT platforms like Netflix and Disney have become synonymous with original content. They not only provide access to a vast library of movies and TV shows but also create their own exclusive content, allowing creators to have more control over their brand and monetization options. OTT platforms have given content creators the opportunity to experiment and produce unique content that might otherwise be restricted in traditional TV or film.



However, the OTT business model does come with its challenges. These challenges include ensuring high picture quality, managing multiple video streaming services leading to potential troubleshooting, optimizing user experience, addressing difficulties in live streaming, and the need for operational intelligence to manage the platform effectively.

Building a successful OTT platform requires strategic decision-making and careful planning. This involves choosing a popular category, understanding user preferences, selecting a suitable business model (such as AVOD, SVOD, or TVOD), developing a content strategy, integrating effective monetization methods, ensuring a seamless user interface, leveraging analytics for user engagement, and implementing an effective promotional strategy.

Recent statistics indicate the immense growth of the OTT industry. In 2023, 83 percent of consumers in the United States were using a subscription video-on-demand service, marking an increase of over 10 percentage points in five years. OTT advertising is also booming, with U.S. OTT ad spend reaching $4 billion between October 2021 and January 2022, accounting for 13% of the total digital ad spending of $32 billion.

OTT platforms offer precise metrics for ad campaigns, enabling advertisers to track viewer engagement, click-through rates, and demographic insights in real-time. With precise targeting based on demographics and interests, OTT advertising ensures that ads reach the right audience. Furthermore, over-the-top marketing platforms are becoming more sophisticated, now offering full-funnel targeting and attribution capabilities that were previously unavailable.

As the landscape of TV becomes more digital and data-driven, brands are increasingly adopting OTT advertising as part of their digital strategy. Streaming video has become mainstream, particularly among younger audiences, as they shift from traditional cable viewing to streaming services like Netflix, Hulu, Roku, and others.

In the following sections of this comprehensive review, we will delve further into the various types of OTT business models, the role of OTT aggregators, the importance of OTT attribution, and conclude with key takeaways that will provide valuable insights for businesses navigating the dynamic world of OTT.

Key Takeaways:

  • The OTT business model has transformed the entertainment industry, offering viewers the freedom to watch what they want, when they want.
  • OTT platforms like Netflix and Disney provide access to original content, giving creators more control over their brand and monetization options.
  • Challenges of the OTT business model include ensuring high picture quality, optimizing user experience, and addressing difficulties in live streaming.
  • Building a successful OTT platform involves strategic decision-making, content strategy development, effective monetization methods, and user engagement analytics.
  • The OTT industry is experiencing significant growth, with a rise in subscription video-on-demand services and increasing ad spend on OTT platforms.
  • OTT advertising enables precise targeting and offers full-funnel targeting and attribution capabilities, making it an attractive option for brands.

History of the OTT Business

The concept of the OTT (Over-the-Top) Business Model began to gain traction in the late 2000s with the emergence of online TV streaming services such as Netflix and Amazon Instant Video. These platforms revolutionized the way people consume television and movies by offering an alternative to traditional cable and satellite subscriptions.

One of the key milestones in the development of the OTT Business Model was the first live stream of a Major League Baseball game by ESPN in 1995. This event showcased the potential of streaming technology and paved the way for a new era in entertainment.

The growth of the OTT Business Model was further fueled by advancements in streaming technology and the introduction of Web 2.0 in 2009. The switch from analog to digital TV, combined with the increasing availability of high-speed internet, enabled viewers to watch content anytime and anywhere.

These developments led to the rise of streaming giants like Netflix, which invested a staggering $17 billion on original content in a single year. The success of platforms like Netflix and Amazon Instant Video has challenged the dominance of traditional pay-TV providers, leading to a decline in pay-TV subscriptions and a shift towards monetization through subscriptions, ads, and premium video-on-demand.

A significant moment for the OTT Business Model came in the early 2010s when the Federal Communications Commission (FCC) established rules and regulations around OTT services. This regulatory framework helped create a level playing field for both traditional broadcasters and OTT providers, ensuring fair competition and consumer protection.

Today, online TV streaming has become increasingly popular, with 74% of US households having at least one streaming service subscription in 2021, compared to 59% in 2017, according to eMarketer research. However, the growth of the OTT industry has also brought challenges, such as piracy. OTT companies face a staggering 30% revenue loss due to piracy, highlighting the need for robust anti-piracy measures.

India’s Growing Preference for OTT Content

It’s not just in the United States that the OTT Business Model has gained popularity. In India, the media and entertainment sector is experiencing rapid growth, with 68.9% of respondents preferring to watch OTT content over traditional entertainment forms, according to a survey by Ascent Group India. This trend underscores the global impact and reach of the OTT Business Model.

AVOD (Ad-Based Video on Demand) Business Model

AVOD (Ad-Based Video on Demand) is one of the most common OTT business models. In this model, consumers can watch videos for free while the platform generates revenue through ad placements. Advertisers pay a fee to the platform to place commercial ad breaks in the content. These ads can take various forms, including video ads, sponsor screens, and sponsored content.

AVOD platforms like YouTube, Tubi, and Pluto TV offer content for free to viewers, relying on advertising revenue. With over 2.5 billion active users, YouTube remains a prominent AVOD platform, attracting a large and diverse user base. By reaching specific demographics more effectively through targeted advertising, AVOD platforms can offer a personalized user experience.

The AVOD market in the US is predicted to reach around 140 million viewers by the end of 2023 and exceed 170 million by 2026. With nearly one in two internet users frequenting AVOD platforms, these platforms have the advantage of attracting a wider audience compared to SVOD and TVOD due to the absence of a subscription fee. This wide user base, combined with personalized targeting based on publisher data, makes AVOD platforms attractive to advertisers.

Benefits and Challenges of the AVOD Model

The AVOD model allows content creators to share in the ad revenue and potential sponsorship opportunities, providing them a source of income. Publishers on AVOD platforms can choose from different ad formats to optimize the user experience and ad impact. However, the revenue generated from advertising can be unpredictable, affecting the revenue potential for platforms and content creators.

Ad-supported streaming content may offer less appeal to some viewers compared to ad-free platforms. However, studies show that 84% of users are willing to watch ads in exchange for free content. Advertisers rely on publishers for precise ad targeting on AVOD platforms to enhance the return on ad spend, making it essential for both parties to find a balance between ad revenue and user satisfaction.

Server-side ad insertion in AVOD is less resource-intensive but may offer less control over ad delivery compared to client-side insertion. Despite this challenge, AVOD remains popular in industries like OTT, Edtech, gaming, and sports for monetizing content through advertising. Viewership is seen as fragmenting with the rise of SVOD, AVOD, and TVOD options, highlighting the increasing dependence on streaming services among viewers.

Statistics Data AVOD Business Model
Number of AVOD viewers in the US (end of 2023) 140 million
Number of AVOD viewers in the US (2026 projection) exceed 170 million
Revenue in the AVOD market (2023 projection) $41.13 billion
Percentage of users willing to watch ads for free content 84%
Percentage of internet users frequenting AVOD platforms in the US nearly 50%
Percentage of HBO Max viewers on AVOD tiers 30%
Percentage of Peacock’s viewers watching with ads 73%

SVOD (Subscription Video on Demand) Business Model

The SVOD (Subscription Video on Demand) business model has emerged as a dominant force in the media industry. With this model, users pay a recurring fee to gain unlimited access to a platform’s content library. SVOD platforms have experienced remarkable growth, with 83% of US households subscribing to at least one SVOD service.

By offering unlimited streaming, SVOD platforms like Netflix, Apple TV+, HBO, and YouTube Premium have revolutionized the way people consume entertainment. This model provides a steady revenue stream for OTT platforms and allows for flexible pricing tiers and plans tailored to different user segments. SVOD services often attract new subscribers through time-limited discounts and promotional offers.

One of the primary advantages of the SVOD model is its ability to gather customer insights and build brand loyalty. Platforms can analyze subscriber preferences, viewing habits, and engagement levels to inform content decisions and enhance the user experience.

However, the SVOD landscape is not without its challenges. As the market becomes increasingly competitive, SVOD platforms face the task of retaining subscribers against free ad-supported alternatives. To stay relevant, SVOD platforms must continually offer top-quality, engaging content that attracts and retains a loyal user base.

This model has proven successful for many platforms. Netflix boasts well over 70 million subscribers in the US and Canada alone, while Amazon Prime Video held a 21% market share in the US in the first half of 2023. HBO Max (now Max) has achieved a 15% market share, and Disney+ has carved out a 13% share in the US market. Hulu, with an 11% share, is also a key player in the SVOD industry.

The rise of SVOD reflects the changing landscape of media consumption. As more viewers plan to “cut the cord” and rely on streaming services, SVOD platforms are expected to continue growing in popularity. It is projected that SVOD subscriptions will reach nearly 1.7 billion worldwide by 2027.

To maximize revenue potential, SVOD platforms offer broadcasters a variety of flexible monetization options. More than one in three broadcasters currently use subscription models to monetize their content, and SVOD platforms enable them to reach a wider audience while maintaining high video quality and impact.

The SVOD business model provides stable and predictable revenue streams derived from recurring subscription fees. It allows broadcasters and content creators to offer exclusive and high-value content, attracting and retaining subscribers willing to pay for premium offerings.

As the VOD market continues to grow, surpassing $69.55 billion in value in 2021 and projected to reach $257.59 billion by 2029, SVOD remains a prominent and vital part of the industry.

TVOD (Transactional Video on Demand) Business Model

The TVOD (Transactional Video on Demand) business model is a popular approach in the world of digital entertainment. It allows customers to purchase or rent videos on a per-view basis, providing them with the flexibility to access specific content without committing to a subscription. Also known as pay-per-view or pay-per-download, TVOD is a straightforward and convenient model for both content creators and consumers.

In the TVOD model, customers pay a one-time fee to watch a particular program or movie. This approach is particularly suited for film debuts, one-time sporting events, exclusive concerts, instructional videos, and niche content that can’t easily be found elsewhere. Broadcasting major sports events, such as live soccer or football games, is a lucrative avenue for TVOD platforms.

TVOD platforms offer a wide range of content, catering to various interests and preferences. Media and entertainment, including movie rentals and sales, represent the largest share of the TVOD market. Customers can also find sports content and online educational material available for purchase or rental.

To protect copyright and prevent piracy, TVOD platforms typically employ digital rights management (DRM) technologies. These measures ensure that unauthorized users are unable to download or distribute content without permission, safeguarding the revenue streams for content creators and distributors.

The worldwide TVOD market is projected to experience significant growth, with estimates suggesting it will reach nearly $9 billion by the end of 2022 and almost $13 billion by 2027. The United States is anticipated to generate the most revenue in the TVOD market, with an estimated $2,279.00 million in 2023.

While the TVOD model offers a convenient pay-per-view option, it doesn’t provide the consistent revenue stream that subscription-based models, like SVOD, offer. With TVOD, customers need to pay for each individual program they want to watch, making it more suitable for one-time or infrequent content consumption.

Streaming platforms like Amazon Prime Video have successfully combined the TVOD and SVOD models. This integration allows users to have access to a catalog of free content while offering the ability to rent or purchase specific titles on a pay-per-view basis, striking a balance between convenience and choice.

Leading TVOD platforms include iTunes, known for its extensive collection of movies and TV shows available for rent or purchase. Another notable example is UFC (Ultimate Fighting Championship), which offers live pay-per-view events for mixed martial arts fans. Sky Box Office and CinemaNow are also notable players in the TVOD space.

TVOD/PPV Segment Revenue (Estimated) CAGR (2023-2027) Market Volume (2027)
$10.20 billion 5.55% $12.66 billion

In summary, the TVOD (Transactional Video on Demand) model offers viewers the flexibility to purchase or rent specific videos on a per-view basis. While it may not provide the consistent revenue stream of subscription-based models, it is ideal for monetizing major sporting events, exclusive concerts, niche content, and instructional material. As the TVOD market continues to grow, it presents exciting opportunities for content creators and consumers alike.

Hybrid Business Models

As the OTT (Over-the-Top) market continues to thrive and evolve, many businesses are adopting hybrid business models to cater to the diverse needs and preferences of users. These hybrid models combine elements from AVOD (Ad-Based Video on Demand), SVOD (Subscription Video on Demand), and TVOD (Transactional Video on Demand) to provide customized experiences.

One example of a successful hybrid business model is Disney+, which offers a subscription-based SVOD service that gives users access to a vast library of content. However, Disney+ also incorporates TVOD by allowing users to unlock new film releases for an additional fee. This combination enhances user engagement and increases revenue potential by offering options for both free and paid content.

Hulu is another platform that has embraced the hybrid approach. It combines AVOD and SVOD, providing users with a choice between a low-level subscription with ads or a higher-level subscription for an ad-free experience. This flexibility accommodates different user preferences and contributes to user satisfaction and retention.

Platform Model
Disney+ SVOD + TVOD
Hulu AVOD + SVOD
Netflix SVOD
Apple TV+ SVOD
HBO SVOD
YouTube Premium SVOD

Hybrid business models provide flexibility and cater to the diverse preferences of users, minimizing the risk of customer churn. By offering both free and paid options, these models maximize reach and revenue potential, as users can choose the level of engagement that best suits their needs. Additionally, adding content to an OTT app can generate up to 10 times more subscription MRR (monthly recurring revenue), making it a strategic move for businesses.

Creators leveraging hybrid models and OTT apps also witness increased watch time and more daily active users compared to solely streaming content through their websites. This highlights the effectiveness of hybrid models in attracting and retaining audiences.

With the OTT market projected to exceed $160 billion by the end of 2020, businesses must adopt hybrid models to stay competitive and provide customized experiences tailored to user preferences. The tremendous growth and success of hybrid models, as evidenced by platforms like Disney+ and Hulu, demonstrate their impact on the industry’s future.

Role of OTT Aggregators

OTT aggregators play a crucial role in the OTT ecosystem by simplifying content discovery and access. These digital platforms or services allow users to browse, search, and watch content from multiple streaming services through a single interface. OTT aggregators collect and consolidate content from various providers, making it easier for users to find and enjoy their favorite shows and movies without having to switch between multiple apps or websites.

With the rapid growth of OTT services and the ever-expanding content library, the role of aggregators has become increasingly important for both consumers and content providers. By aggregating content from different sources, OTT aggregators provide a convenient and streamlined user experience, saving time and effort in searching for desired content.

One prominent example of an OTT aggregator is Viaccess-Orca, a leading provider of content protection and TV platforms. Viaccess-Orca’s solutions enable secure content delivery and offer advanced features such as personalized recommendations and advanced analytics.

Comviva is another notable OTT aggregator that specializes in digital content management and distribution. The platform provides end-to-end solutions for content monetization, helping content owners and distributors maximize their revenue potential.

Tata Sky Binge is a popular OTT aggregation service in India that brings together content from various streaming platforms, allowing users to access a wide range of shows, movies, and live TV channels through a single subscription. It offers a user-friendly interface and personalized recommendations based on user preferences.

OTT aggregators like Viaccess-Orca, Comviva, and Tata Sky Binge not only simplify content discovery but also enhance the overall user experience through features such as AI-powered recommendation engines, multi-lingual content with subtitles, and multiple user profiles. By catering to the diverse preferences of users, these aggregators contribute to the growth and success of the OTT industry.

In conclusion, OTT aggregators play a vital role in the OTT landscape by delivering a seamless content discovery experience and consolidating content from multiple sources. Platforms like Viaccess-Orca, Comviva, and Tata Sky Binge exemplify the value of OTT aggregators in simplifying access to a vast array of streaming content. As the OTT market continues to grow, the importance of OTT aggregators in facilitating content discovery and enhancing user experiences is set to increase.

Importance of OTT Attribution

OTT attribution plays a vital role in measuring the effectiveness of marketing campaigns on OTT platforms. By tracking user interactions and conversions, OTT attribution provides valuable insights that help marketers optimize their strategies and maximize ad effectiveness.

One of the key advantages of OTT attribution is its ability to tailor ads to specific audience segments. Using data and analytics, marketers can leverage OTT targeting to deliver personalized ads that resonate with their target audience. This level of customization ensures that ads are highly relevant, increasing the chances of user engagement and conversion.

An essential tool for OTT attribution is CTV AdVision, which offers valuable data insights into critical OTT metrics for CTV to mobile and CTV to CTV app campaigns. With CTV AdVision, marketers can gain a comprehensive understanding of their campaign performance and make data-driven decisions to improve their results.

Ad podding is another effective strategy in OTT marketing. By grouping multiple ads and delivering them consecutively during a commercial break, ad podding enhances ad viewing efficiency and improves the overall user experience. This approach increases the likelihood of users engaging with the ads and boosts ad effectiveness.

When it comes to measuring the impact of OTT advertising, two crucial metrics are view-through attribution (VTA) and click-through rate (CTR). VTA measures the number of conversions that occur after a user views an ad, while CTR measures the number of users who click on an ad. These metrics provide valuable insights into the effectiveness of ad campaigns and guide future optimizations.

Emarketer predicts that by the end of 2021, over 84% of companies in the United States will utilize digital attribution models, highlighting the growing importance of attribution in showcasing campaign effectiveness. Additionally, 84% of marketers feel the pressure to demonstrate the effectiveness of their campaigns, further emphasizing the need for accurate and reliable OTT attribution.

OTT attribution not only tracks user interactions but also facilitates cross-device integration. This integration allows marketers to gain a holistic view of user behavior and engagement across different devices. By understanding how users interact with OTT content across various devices, marketers can optimize their campaigns for maximum impact.

Benefits of OTT Attribution OTT Ad Formats
  • Raises the bar for creative and content delivery
  • Bridges the gap between branding and measurable results
  • Facilitates precise audience targeting
  • Pre-roll ads (15-30 seconds long)
  • Mid-roll ads (30 seconds to a few minutes)
  • Post-roll ads (a few seconds to several minutes)
  • Banner ads
  • Overlay ads

Tracking metrics from OTT advertising efforts provides valuable insights into campaign performance. These metrics include the number of viewers, website visits post-advertisement viewing, top-performing OTT devices, and user journey analysis across various channels. By analyzing these metrics, marketers can optimize their campaigns, improve ad delivery, and enhance overall ad effectiveness.

It’s worth noting that DSPs (Demand-Side Platforms) provide OTT and CTV ad campaign metrics without additional costs. However, these metrics may be biased and may not provide a comprehensive view of campaign performance. On the other hand, third-party ad servers for OTT attribution require additional costs but offer better protection from ad fraud.

Measurement and analytical tools for OTT attribution focus on leveraging up-to-date technologies to accurately measure attribution and ad performance. These tools enable marketers to make data-driven decisions, optimize campaigns in real-time, and effectively target their desired audience.

With the growing adoption of OTT advertising, the importance of OTT attribution cannot be overstated. By leveraging OTT attribution, marketers can gain valuable insights, optimize their campaigns, and measure the effectiveness of their advertising efforts on OTT platforms.

Conclusion

The OTT (Over-the-Top) business model has revolutionized the streaming industry, offering a diverse range of options for users to enjoy their favorite content. With the projected market volume of US $467.30 billion by 2027 and an annual growth rate of 10.32%, the future of OTT looks promising.

OTT platforms have successfully generated revenue through various models such as SVOD, AVOD, and TVOD. Platforms like Netflix, Hulu, and Amazon Prime Video have capitalized on the SVOD model by offering an extensive library of content accessible to users worldwide.

AVOD platforms like YouTube, Roku Channel, and VUDU have captured a significant portion of the streaming business, providing users with free access to content supported by advertisements. Additionally, TVOD platforms have seen growth by allowing users to pay for specific content without subscribing to a full service.

The hybrid OTT revenue model, combining subscription-based and transactional video on demand, is gaining popularity due to its ability to attract a broader audience and reduce subscriber churn. The multi-screen model has also contributed to the growth of the OTT industry, providing users with seamless viewing experiences across multiple devices.

As the streaming trends and user demands continue to evolve, it is crucial for OTT platforms to adapt and innovate their revenue generation strategies. By constantly refining their models and enhancing the user experience, OTT platforms can stay competitive in the dynamic streaming market.

FAQ

What is the OTT (Over-the-Top) Business Model?

The OTT Business Model refers to the delivery of video and TV content over the internet, bypassing traditional cable and satellite TV providers. Viewers can access OTT platforms through streaming services on various devices like smartphones, tablets, smart TVs, and OTT boxes.

How has the OTT Business Model revolutionized the video streaming industry?

The OTT Business Model has transformed the way viewers consume content by offering a more flexible, on-demand experience. It has allowed viewers to cut the cord on traditional cable and satellite subscriptions, providing a wide range of streaming options and content choices.

What are the different types of OTT business models?

There are three primary OTT business models: AVOD (Advertising-based Video on Demand), SVOD (Subscription Video on Demand), and TVOD (Transactional Video on Demand). Each model has its own revenue generation strategies and user experience.

What is AVOD (Ad-Based Video on Demand) business model?

AVOD is an OTT business model where viewers can watch video content for free while the platform generates revenue through advertisements. Advertisers pay the platform to place commercial ad breaks within the content.

What is SVOD (Subscription Video on Demand) business model?

SVOD is an OTT business model where viewers pay a recurring subscription fee to access the platform’s content library. They gain unlimited streaming capabilities and enjoy an ad-free experience.

What is TVOD (Transactional Video on Demand) business model?

TVOD is an OTT business model where viewers can purchase or rent videos on a per-view basis. It suits scenarios like film debuts, one-time sporting events, or instructional videos.

Are there any hybrid business models in the OTT industry?

Yes, some OTT platforms have adopted hybrid business models, combining elements from AVOD, SVOD, and TVOD. These platforms offer customized experiences, providing options for both free and paid content.

What role do OTT aggregators play in the streaming industry?

OTT aggregators simplify content discovery and access by allowing users to browse and watch content from multiple streaming services through a single interface. They collect and consolidate content from various providers, making it easier for users to find and enjoy their favorite shows and movies.

Why is OTT attribution important for marketers?

OTT attribution helps marketers measure user interactions and conversions within OTT media services. It enables them to understand the effectiveness of their advertising campaigns, track user engagement, optimize targeting strategies, and gain insights into the user journey across different devices.

How are smart TV platforms integrated into the OTT industry?

Smart TV platforms have become an integral part of the OTT industry, enabling viewers to access streaming services directly through their televisions. These platforms provide a seamless user experience and enhance content consumption on the big screen.