When OTT streaming networks first emerged on the home entertainment scene, in-person DVD rentals quickly became obsolete. Since then, streaming business models have continued to evolve with changing technologies and consumer preferences, and to maintain a competitive edge. The two prominent streaming models, SVOD and AVOD, each offer different benefits to streaming networks and viewers.
There are numerous factors to consider when deciding whether a subscription video-on-demand (SVOD) or ad-based video-on-demand (AVOD) model is the best monetization strategy. Let’s consider the pros and cons of each model, to help you determine the most profitable strategy for your content distribution.
SVOD vs. AVOD: Differentiating Subscription
and Ad-Based Video on Demand
Popularized by Netflix, subscription video on demand quickly became the primary streaming business model of major OTT streaming networks including The Weather Channel, Hulu, Impact Wrestling, and Prime Video. With the SVOD model, viewers pay either monthly or annual subscription fees for unlimited access to an extensive library of video content. Subscribers have access to original content and videos produced by other media companies and can watch ad-free programming at any time, from any connected device.
SVOD works for giants with established names and platforms with a highly engaged niche audience, like Impact Wrestling and Fubo TV. But with an increase in OTT distribution networks, other streaming platforms had to find a new way to remain competitive. What better way to draw viewers than offering free content? AVOD changes the revenue stream, allowing media companies to earn revenue through advertising rather than charging viewers. Viewers can watch video content for free, but they have to put up with ad intervals during programming. YouTube, Local Now, and AXS TV all employ this streaming model.
To attract the broadest possible audience, many platforms, like Impact Wrestling, now offer a mix of free and paid-for content.
AVOD: Pros and Cons of Advertising Video on
AVOD streaming models can offer substantial benefits to viewers, content owners, streaming platforms, and advertisers as many grow weary of juggling a never-ending amount of subscriptions. But although AVOD has the potential for high income, it’s necessary to remember that viewers have also largely become used to ad-free viewing.
Pros: Leveraging Advertising Revenue and Wider Audience Reach
Accessibility for All
The free content model makes it highly attractive for viewers who don’t want to pay for programming. Since 80% of viewers claim that they don’t mind ads in exchange for free video programming, it’s safe to say that this model draws a large number of additional consumers.
Unlike subscription-based models (SVOD), there is no need for buying rights or upfront content creation investments with AVOD. Instead, content owners upload their videos and earn a share of the revenue from ads incorporated in their content.
Instant Access to Viewership
By hosting content on a third-party AVOD platform, content owners have access to showcase their work to millions of viewers who are looking for free content.
Incentives for Content Owners
With revenue incentives for content owners to upload new content, AVOD platforms maintain a steady flow of new material. As content draws more users, more ads are viewed; a shared-revenue model results in increased revenue for both the platform and content owners.
Platforms can leverage viewer analytics to provide personalized content recommendations and targeted advertisements.
Advertisers are turning to AVOD platforms due to their huge and varied audiences. They can use behavioral data and customer analytics to personalize ads, leading to more effective advertising and nurturing customer loyalty.
Cons: Viewer Interruption and Limited Content Access
Viewer Distractions & Ad Fatigue
Viewers can easily get distracted or annoyed by loud, unwanted, lengthy, or repetitive ads. This may cause them to lose interest and leave the platform.
Bigger Financial Risk
Where subscription-based streaming models (or SVOD) pay for the rights to their content upfront, AVOD depends on the number of clicks and views the content generates and does not guarantee you’ll see a return on the investment made in creating and/or producing the content.
Potential for Irrelevant Advertising
When user data is not adequately available, AVOD platforms will not be able to optimize advert personalization. Irrelevant advertising content can lead to a poor experience for users.
SVOD: Pros and Cons of Subscription Video
A few years ago, a breakaway from ad-laden traditional television broadcasting was highly sought after. With the popularity of Netflix’s SVOD streaming model, users have become accustomed to a variety of ad-free programming when and where they want. However, with the increase in market competition of late, the highly popular streaming model now also poses a few disadvantages for viewers, streaming platforms, and content owners.
Pros: Subscription Revenue Stability and Exclusive Content Offerings
Unlimited Content Access
SVOD offers viewers unlimited access to content, which makes it a highly attractive model for viewers who want a large variety of video content.
Guaranteed Return on Investment
Unlike AVOD, where content owners will need to rely on ad revenue for profit, SVOD platforms pay content owners an agreed-upon amount upfront to produce their content or buy the rights to a finished product. This makes it easier for content owners to gauge their income streams and strategize accordingly.
SVOD platforms can use customer analytics to provide personalized content recommendations. This not only leads to more effective content discovery but also fosters viewer loyalty.
With no ad interruptions, viewers have distraction-free viewing and an improved user experience. This allows users to consume more content and, in turn, results in returning customers on the platform.
Improved Customer Loyalty
High-quality programming, personalization, and a wide variety all enhance the customer experience leading to strong customer loyalty and user retention.
Cons: Dependence on Subscriber Numbers and Potential Market Saturation
Higher Cost for Users
Having to pay for viewing content can be a barrier for some users, especially with the rise of AVOD.
Higher Costs and Complex Terms for Content Owners
Creating content designed for SVOD platforms often involves significantly larger budgets and complex agreements. This often comes at a higher production cost and, therefore, a riskier investment for content owners.
SVOD platforms—especially smaller ones—may not be able to release the latest or most popular content due to licensing agreements and release windows.
The SVOD streaming market is highly competitive. While major players like Netflix, Amazon Prime Video, and Disney+ can hold their own, their intense market dominance makes it harder for smaller platforms to enter the market.
Limited Revenue Streams
SVOD relies solely on subscription revenue. Considering higher production costs and limited content due to licensing agreements, this can limit revenue growth. Models that include advertising or transactional purchases have additional avenues for increasing revenue in a saturated market.
Finding the Right Balance between AVOD
and SVOD Monetization Strategies
Choosing the best monetization model for your content requires a deft understanding of your target viewer demographic and their preferences. In addition to leveraging customer analytics, your team’s technical knowledge, appetite for risk, and how well you are established in the market all play a role.
dotstudioPRO’s all-in-one OTT distribution and video management service frees content owners from distribution technicalities. With dotstudioPRO, you’re instantly equipped to reach a larger audience, employ multiple monetization tools, generate stable revenue, and broadcast to popular video streaming channels. In addition, you have all the tools you need to manage video storage, quality, and delivery from an easy-to-use dashboard.
Ready to roll out your content to Apple TV, Google Play, Amazon Fire TV, Vizio, Roku, and more? Request your demo today.