Everything you need to know about the business models of OTT Platforms

From binge watching The Money Heist to discussing about Dark, this was the story of many during the lockdown. The worldwide lockdown has drastically increased the consumption of content through Over-The-Top platforms.

But what actually are OTT Platforms?

The widely accepted definition for OTT platforms states that these are digital platforms where the content is consumed over the internet, as opposed to the other media available such as cable connections or D2H services. YouTube, Netflix and even Tik-Tok are some of the famous OTT platforms.

OTT platforms can be divided into three categories based on their business model:

  1. Subscription Video on Demand
  2. Ad-based Video on Demand
  3. Transactional Video on Demand

The most common of the business models for OTT platforms work on a Subscription Video on Demand model. These are considered the most premium of the OTT Platforms. Netflix, Amazon Prime Video, Hotstar and other similar services fall in this category.

Subscription Video on Demand

Let us take an example of Netflix to better understand its business model.
  • Revenue Model: The SVOD subscription model allows potential customers to view the content only after purchasing a timed-subscription. Netflix, being the most premium platform in India, charges from 200 rupees per month to a 900 rupees per month plan.
  • Cost structure: The major cost component for Netflix comprises of producing new content as well as purchasing the same from other production houses. Other cost component is directed to the maintenance for the server where the content is stored and streamed to millions of users.
  • Key Activities: As the platform need to have a large collection of content for keeping their subscribers engaged, procurement of existing or upcoming media and production of new media turns out to be some of the key activities. This in turn leads to an increased customer base.
  • Key Partners: Other production houses and partnership with consumer electronics brands are the key partners for the platform.
  • Value Proposition: They are marketed for 24×7 availability of content along with some exclusive content.
  • Key resources: Developers, Servers and last but not the least, their suggestion algorithm are the resources which is stressed upon for most OTT platforms.
  • Customer relation: The relationship building with customers turns out another major aspect for Netflix. It achieves it through an easy self-setup, a free trial for users who wish to try out the platform and connects with its customers through social media platforms.
  • Channels: Netflix works both through its online website as well as applications available for almost all smartphones and smart TVs.
  • Customer segments: Netflix attracts customers who wish to watch exclusive content with an ad-free experience. A majority of its audience comprises of working professionals.

Ad-based Video on Demand

Another popular business model for OTT platforms is the Ad-based Video on Demand model or the AVOD model. Here, the consumers can watch/listen to their preferred content but with advertisements playing in the duration of the content. One very popular example for AVOD model is YouTube. Although YouTube also has a premium subscription available for ad-free experience, we will discuss about its AVOD part of the model here.

  • Revenue Model: YouTube allows its customers to view the content available on their platform without any direct transaction. However, they stream advertisements during the browsing/viewing period.
  • Cost structure: The major cost component for it comprises of maintenance for the server where the content is stored and streamed to millions of users. Also, YouTube also issues payouts to the content creators on its platform.
  • Key Activities: Optimization of its platform (for both the audience and the content creators) as well as optimization of advertisements for consumers based on their preference form the major activities for YouTube.
  • Key Partners: Google Ads, which is also a subsidiary of the parent company Alphabet, is responsible for bringing in advertisements and making it relevant to the viewer. On the other hand, the content creators form the pillar for the ever rising popularity of YouTube.
  • Value Proposition: 24×7 free availability of content is one of the main propositions put forward by YouTube for its consumers. Whereas, for Content creators, it provides the ability to post or stream fresh content on its platform, chat with their subscribers and a handsome payout as the video reaches higher views and likes. Also, for both its advertisers and content creators, it provides a huge pool of audience for the content.
  • Key resources: Googles servers are one of the most important resource for YouTube. It helps store the hours of videos uploaded by the billions of content creators every day.
  • Customer relation: An easy to setup google account to be used for YouTube, free accessibility to content along with customized advertisements for its viewers make up the customer relation strategy for YouTube.
  • Channels: It works through both its website and its application on various operating system and consumer electronic products.
  • Customer segments: Content creators, advertisers and viewers make up the customer segments for YouTube.

Transactional Video on Demand

Transactional Video on Demand or TVOD is one of the least used business models for OTT platforms. The customer pays for renting or purchase of media for online consumption. SVOD models provide unlimited content for a timed duration whereas, in TVOD model, only a single movie/song is allowed to be bought. Some common of these include iTunes and Google Play.

  • Revenue Model: The TVOD allows customers to purchase/rent a type of content for timed/permanent consumption.
  • Cost structure: The major cost component for TVOD platforms comprises of purchasing content right from other production houses. Other cost component is directed to the maintenance for the server where the content is stored and streamed to millions of users.
  • Key Activities: Procurement of Content and retention of customer base are the major activities for TVOD based platforms.
  • Key Partners: Production houses and music creators are the major partners for the TVOD platforms.
  • Value Proposition: Ad-free content available for 24×7 consumption is the major proposition for such platforms.
  • Key resources: The application developers are the major resources required by the platforms.
  • Customer relation: Self setup and free trials (demo) are the only customer directed activities undertaken by the platform.
  • Channels: Applications are the more used channel for such platforms, however, they may also use website for the same.
  • Customer segments: Customers who want to watch a specific movie or listen to a specific song form the targeted customer platform.

Hope this article gave you a fair idea about the over the top business models.

We would love to hear from you, your opinions about the OTT platforms. Please share your thoughts with us in the comments below.

This article is written by our strategy enthusiast Mr Ashish Sharma.

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