The “fall” of SVOD and rise of AVOD & TVOD
While many people still subscribe to traditional cable channels, OTT (over-the-top) streaming is poised to become the default method of video delivery by 2024. With a growing number of people streaming video worldwide, it’s no surprise that providers are getting more creative and varied in their distribution models.
The world of online video is changing quickly, so keeping up with the rising trends is important. In this article, I’ll introduce you to the video streaming models dominating the market today and some of the trends I’m seeing in 2021. Even if you’re already committed to a specific model, you’ll see how other content providers are experimenting with hybrid approaches to increase revenue and improve engagement.
SVOD vs. AVOD vs. TVOD
Video streaming services are typically supported by one of the following revenue models or a hybrid of more than one. Some content providers also give viewers the option to use one or more models (a multi-channel approach), so while it’s helpful to understand these three models, you aren’t necessarily locked into any one of them.
Subscription Video on Demand (SVOD)
Examples: Netflix, HBO Max
Customers pay a monthly subscription fee to access content on SVOD platforms. While it’s the most popular streaming model right now, it’s getting increasingly competitive as consumers start to experience subscription fatigue (more on that later).
Advertising-Based Video on Demand (AVOD)
Examples: YouTube, Tubi, Peacock, Hulu
Advertising-supported models work best with large content libraries and lots of views. While AVOD has gotten a little less popular among streaming providers in the past year, it’s hard to know if that’s a temporary blip because of falling advertising rates during Covid-19 or a more permanent trend.
Transactional Video on Demand
Examples: Google Play Movies, iTunes
Finally, consumers pay a single, one-time fee to stream content under a TVOD model. While this can get expensive for heavy viewers, it’s often the only option for new content. It may be the least popular model today, but more video providers are adding TVOD content to existing subscription or ad-supported options (as you’ll read later).
Trends in Video Streaming
Now that you know the options, I want to point out some of the trends I’m seeing in streaming video this year. With Covid-19 and faster internet on more devices continuing to impact entertainment choices, 2021 is likely to be another big year for streaming video. But, this growth won’t happen without change.
1. Multiple Streaming Services is the Norm
According to the Leichtman Research Group, over half of United States households now subscribe to multiple streaming video services. As more content owners put up walled gardens like Disney’s Disney+ and NBC’s Peacock TV, they’re taking their content off third-party platforms like Hulu and Netflix. This has forced viewers to add more subscriptions to watch their favorite shows and movies.
While it sounds like a good deal for providers, it’s starting to lead to subscription fatigue (see the next point below). On the other hand, it’s opened up new opportunities for aggregators and content bundlers who bring subscriptions from multiple services into one place. Sites like JustWatch help people figure out which streaming services have specific content, and content aggregators like Reelgood have grown quickly in the past year thanks to the proliferation of streaming services.
Bundling isn’t just for third-party tools; it makes sense for SVOD services as well. By providing content from multiple sources, you can keep viewers on your platform longer and increase satisfaction while keeping their costs low.
“I think the main opportunity here, for innovation, is going to be how to better engage the viewers…And I think one of the best ways of doing this is to think about bundling. Looking at some of our customers, they’ve definitely got the content already available without having to add additional channels or additional VOD assets.” – Jure Žlak, Beenius
2. Growing SVOD Frustration
While the growing price of multiple SVOD services is frustrating to nearly half of all consumers, it’s not even the most common gripe. According to Statista, frustration with expired content rights and the sheer number of options is the most annoying parts of SVOD today.
These frustrations are leading to an increase in churn for streaming services:
“The problem is that, because they are so easy to cancel, those services are seeing a lot of people leave after they finish watching the shows that convinced them to sign up in the first place. That phenomenon, known in the industry as ‘churn,’ is a growing headache in the streaming wars.” – Ryan Faughnder, LA Times
Almost half of streaming subscribers report canceling at least one of their services in the past six months, so it’s critical for content providers to understand what viewers really want out of their service. While SVOD remains the most popular monetization option in 2021, it’s important not to assume this will be the case forever.
“We’re definitely entering the Big Bang era of the streaming services. As the market splits into smaller fractions, consumers will get lost in the clutter, and subscription fatigue will surely continue.” – Moti Cohen, CEO at Apester
3. Different Users are Drawn to Different Models
Another trend that is better understood in 2021 is the fact that different streaming models bring in different kinds of viewers. For example, AVOD – which is typically free for users – tends to attract older, lower-income users than SVOD models:
“25% of AVoD users are aged 45 to 54 versus 22% of SVoD viewers, and 19% of AVoD users are aged 55 to 64 versus 14% of SVoD subscribers. Nearly half of US AVoD users have an annual household income of less than $30,000 per year, compared to a third of SVoD users.” – Ampere Analysis
While AVOD services have typically relied on user-generated content (in cases like YouTube) or smaller catalogs (like in Hulu’s early days), this is becoming less true in 2021. Tubi’s catalog, for example, has grown larger than Netflix’s and is nipping on Amazon Prime’s heels.
I’ll be interested to see how AVOD continues to mature in the coming years, but I think the takeaway for content providers is to understand your target audience. If your content is aimed at users who are less likely to pay for a new subscription service, consider AVOD. If your users aren’t as price-sensitive, SVOD or even TVOD for premium content might make sense.
4. The Growth of TVOD During Covid
With movie studios unable to rely on a steady stream of theater-goers during the Covid-19 pandemic, many turned to streaming premium content. While Netflix and Amazon Prime have been including new releases in their subscription packages for the past few years, most studios have stuck with the traditional in-theater release cycle until now.
Without the option of going to theaters, consumers appear more amenable to paying $30 to rent a new release online, and TVOD saw significant growth in 2020. The big question is whether this trend is only temporary due to the pandemic or if it’s likely to continue. I could see many movie-goers returning to theaters once a Covid-19 vaccine is widely distributed, but I could also see improvements in smart TVs encouraging viewers to enjoy premium content at home.
5. Hybrid Models are Increasingly Common
Finally, more video streaming companies are experimenting with or committing to multi-channel and hybrid models. For example, Disney+ and Amazon Prime both use an SVOD and TVOD hybrid model that allows them to charge more for premium content that users might watch once per week while offering plenty of options for daily streamers included in their monthly fees. Similarly, Hulu and YouTube both offer AVOD and SVOD hybrid models. You can watch free content with ads on both platforms, but you’ll get more content and fewer (or no) ads by paying for a subscription.
This hybrid approach seems like a win-win for both consumers and content providers. Providers can hook users with free (AVOD) or low-cost (SVOD) content and then push them to pay for recurring (SVOD) or premium (TVOD) content along the way.
Of course, nothing comes without a cost, and managing a hybrid model increases complexity:
“While having a multiple AVOD/SVOD combo can really lower the entry point for SVOD services…it is difficult to execute and it does potentially introduce customer confusion. So there are definitely pros and cons to having multiple business models.” – Mike Gamboa, Director of Partner Growth at Roku
You’ll have to be sure that users understand what they get at both free and paid tiers, that they aren’t frustrated by ads or paying you twice for content, and you’ll have to build multiple payment and revenue models. This can make your software and business operations more complicated, so you’ll have to be sure that the new revenue streams are worth the extra costs.
OTT streaming video is here to stay, but the models that consumers and providers prefer are still in flux. While keeping up with how the norms are changing is helpful, it’s also critical to keep your video streaming costs in check along the way. That’s where tools like Bitmovin’s come in. By taking advantage of the best codecs and per-title encoding, Bitmovin can help reduce your storage and streaming costs, no matter which pricing model you use.