In the rapidly evolving digital landscape, choosing the right monetization model for your streaming service is crucial to driving revenues and maintaining a competitive edge.

Subscription Video on Demand (SVOD), Advertising Video on Demand (AVOD), and Freemium models have emerged as the top contenders in this space. Each model presents its unique advantages and potential challenges, and the choice between them depends mainly on your business goals, target audience, and content strategy.

This article will delve into the nuances of SVOD, AVOD, and Freemium models, providing invaluable insights to help you make an informed decision. Let's dive in!

This is a guest post from the advertising pros at Setupad.

Table of Contents

• Understanding the Streaming Service Market
• The Importance of Video Monetization
• Subscription Video on Demand (SVOD)
• Advertising Video on Demand (AVOD)
• Freemium: A Mix of Free and Premium
• Hybrid Model: Combining SVOD and AVOD
• Choosing the Right Model: Key Factors to Consider
• Transitioning Between Monetization Models
• Future Trends in Monetization Models

Understanding the Streaming Service Market

Before diving into the various streaming service monetization models, let's first look at the current state of the streaming industry. 

The streaming service market is projected to grow exponentially over the next few years. According to a recent report, around 85% of people are subscribed to at least one video streaming service. This rapid growth is largely attributed to increased user demand for on-demand content and the growing popularity of streaming platforms such as Netflix, Amazon Prime, and Hulu. 

The market is expected to surge further in the years to come with the adaptation of newer technologies such as 5G networks and virtual reality. The growth of streaming services is also expected to be accompanied by a rise in subscription fees and ad revenues.

Growing Consumer Expectations and Changing Viewing Habits

The changing viewing habits of consumers further drive the streaming service market. Consumers are increasingly turning to streaming services for their entertainment needs, and they expect a seamless user experience with an extensive library of content. 

In addition, users also want access to personalization features such as custom search filters, AI-driven recommendations, and offline downloads. 

The Importance of Video Monetization

Monetization is crucial for the sustainability and growth of your streaming service. It is vital in generating revenue that helps cover operational costs, including content acquisition, platform maintenance, and technological upgrades. 

Video monetization also supports the further expansion of your service, facilitating the addition of new features or content that can improve user experience and enhance customer satisfaction. Streaming services may struggle to meet user demands and remain competitive in the fast-paced digital landscape without income from a strong monetization model.

Subscription Video on Demand (SVOD)

Subscription Video on Demand (SVOD) is a popular media distribution model that offers users access to a wide range of digital content through a subscription-based service. 

By paying a recurring fee, users gain unlimited access to a platform's content library, which can be enjoyed anytime and anywhere with an internet connection. The convenience of SVOD lies in the ability for users to choose what they want to watch without interruptions from advertisements. 

Additionally, SVOD services provide personalized recommendations based on user preferences and viewing history, enhancing the viewing experience.

SVOD Pros and Cons

Pros of SVOD:

• Cost-effectiveness (for viewers)
• Seamless streaming across multiple devices
• More original content to watch
• Recurring revenue

Cons of SVOD:

• Fragmentation of content across different platforms
• Reliance on an Internet connection 

Successful SVOD Examples

Netflix is a prime example of a successful SVOD service, with a massive subscriber base and extensive content library. Disney+ is another notable SVOD platform, offering a vast collection of Disney, Pixar, Marvel, and Star Wars content.

Other examples of successful SVOD services include Hulu, Amazon Prime Video, HBO Max, and Apple TV+. Each platform offers unique features and content offerings, catering to different audience preferences.

Advertising Video on Demand (AVOD)

Advertising Video on Demand (AVOD) is a model where users can access digital content for free in exchange for viewing advertisements. AVOD platforms generate revenue through targeted ads displayed during or alongside the content. This allows users to enjoy a wide range of movies, TV shows, and videos without paying a subscription fee. 

The benefits of AVOD include free access, offering content without upfront costs, a variety of content, including popular movies and TV series, and accessibility across multiple devices for flexible viewing anytime, anywhere.

AVOD Pros and Cons

Pros of AVOD:

• Free access to a wide range of content
• A lower financial barrier for users (creating a lower barrier of entry)
• Opportunity for advertisers to reach a large audience
• Potential for higher ad revenue due to larger viewership

Cons of AVOD:

• Ad interruptions can disrupt the viewing experience
• Limited control over the type and frequency of ads displayed
• Some users may find the ads repetitive or annoying

Successful AVOD Examples

YouTube is one of the most successful AVOD platforms, offering free access to a massive collection of user-generated and professional content. 

Other successful AVOD examples include Tubi, Crackle, and Pluto TV, each catering to different genres and audiences. These platforms demonstrate the viability of the AVOD model in offering free content while generating revenue through targeted advertising.

Outstream Video Ads: A New Age Advertising Approach

Outstream video ads represent a fresh approach to video advertising, different from the traditional instream advertisements on platforms like YouTube. 

Unlike in-stream ads that play before, during, or after the video content the user has selected, out-stream ads are designed to play outside of video players – for instance, in between paragraphs of an article or in the corner of a webpage.

The primary benefit of out-stream video ads is that they allow publishers without video content to monetize their digital assets. These ads are typically set to play automatically when they come into view, ensuring a higher view rate. This means a broader reach for advertisers, as their ads aren't limited to just video platforms. For publishers, it offers a new revenue stream.

Outstream Video Ads Pros and Cons

Pros of Outstream Video Ads:

• Access to a broader audience beyond video platforms
• Non-intrusive compared to Instream ads, improving user experience
• Higher view rates as they play automatically when in view

Cons of Outstream Video Ads:

• Potential for the user to scroll past before the ad has finished
• Overuse can harm the user experience on a website
• Requires strategic placement to ensure they're seen without being disruptive

With the rapid growth of mobile browsing and the increasing consumption of written content online, out-stream video ads offer a unique opportunity for advertisers and publishers alike. However, like any ad model, it's essential to strike a balance to ensure user experience isn't compromised.

Freemium: A Mix of Free and Premium

The Freemium model is a business strategy combining free and premium offerings. It allows users to access a basic version of a product or service for free while offering additional features or content at a premium price.

The freemium model makes it easy to attract a large user base, providing an opportunity to convert them into paying customers. Additionally, it allows users to try the basic version before deciding to upgrade, allowing them to experience the value of the premium features.

Freemium Pros and Cons

Pros of Freemium:

• Increased user base and brand awareness
• Opportunity for upselling and conversion to premium subscriptions
• Ability to gather data and insights from a large user pool

Cons of Freemium:

• Potential revenue loss from free users who never upgrade
• Balancing the features offered in the free and premium versions

Successful Freemium Examples

Spotify is one of the most successful freemium examples, offering free access to a vast music library with ads while offering premium subscriptions without ads and additional features like offline listening. 

LinkedIn Learning is another key example, which provides a limited selection of online courses for free, with premium subscriptions unlocking unlimited access to all courses and certifications.

Other examples of successful freemium models include Dropbox, Evernote, and Mailchimp, each offering a range of free and paid features to cater to different user needs.

Hybrid Model: Combining SVOD and AVOD

The Hybrid Model combines elements of SVOD and AVOD to create a unique approach to media distribution. In this model, users can choose between a subscription-based service that offers ad-free content or a free tier with limited access to content supported by advertisements.

Hybrid Model Pros and Cons

Pros:

• It provides users with the flexibility to choose between subscription-based or free-tier options
• Offers a broader range of content availability
• Generates revenue from both subscriptions and targeted advertising

Cons:

• Advertisements may interrupt the viewing experience for free-tier users
• Subscribers may have to pay a higher fee to access ad-free content compared to standalone SVOD platforms

Successful Hybrid Examples

Examples of successful hybrid model platforms include Hulu, which offers both subscription plans and an ad-supported option, and Peacock, which provides a free tier with ads and premium subscriptions for an ad-free experience. 

Choosing the Right Model: Key Factors to Consider

When choosing the right streaming model for your business, several key factors must be considered. These include:

• Understanding your audience: You'll want to consider your audience's preferences, needs, and willingness to pay for content.
• Content quality and quantity: If you're offering a subscription service, the quality and quantity of content available is key to attracting customers.
• Market competition: What other streaming services are available in your market, and what offerings do they provide?
• Legal and regulatory considerations: Lastly, you'll want to consider the legal and regulatory requirements in your geographic region, such as copyright laws or data privacy regulations.

Transitioning Between Monetization Models

Transitioning between monetization models can be a complex process with key considerations and challenges. User expectations, revenue streams, and content availability must be carefully evaluated. 

To smoothly transition without losing the audience, clear communication about the change is essential, along with providing incentives for users to remain engaged. 

Gradual implementation, offering trial periods, and providing seamless user experiences are strategies that can help ensure a successful transition.

Future Trends in Monetization Models

Future trends in monetization models indicate innovations in SVOD, AVOD, and Freemium models. 

Streaming service monetization is predicted to evolve with advancements such as personalized ad experiences, hybrid models combining subscriptions and advertising, and targeted offerings based on user preferences and behaviors. These trends aim to enhance user engagement, maximize revenue streams, and provide a seamless viewing experience. 

Final Thoughts

When choosing a video monetization model, it's important to consider your audience's needs and preferences, content quality and quantity, market competition, and legal considerations. 

Transitioning between monetization models can be a complex process but is possible with clear communication and an emphasis on user experience. Future trends in streaming service monetization point toward innovations in SVOD, AVOD, freemium, and hybrid models. 

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About the Author

Alise Zaiceva is a content marketing manager at Setupad. She’s passionate about content and helping publishers scale their businesses through powerful digital marketing strategies. In her free time, she expands her knowledge of tech.