When it comes to streaming video and packaging of content, there’s no such thing as “one size fits all.” Today’s consumers thrive on customized recommendations: they’re happiest when they’re given a bespoke solution that’s been tailor-made for their needs and allows them to sit back, relax and enjoy the content that is presented to them. That’s why subscription-based models, which allow customers to subscribe to the media plan that’s right for them, are booming.
Subscription-based business models feed right into the personalization customers crave, if properly executed. Fittingly, there’s more than one type of subscription model out there, and each has different pros and cons. Here’s a quick guide to the four main subscription models and how they serve different business needs.
Ad-supported or “freemium”
An ad-supported subscription model is exactly what it sounds like: viewers agree to be served advertisements in exchange for access to content instead of paying a subscription fee. By collecting data from viewer accounts, content providers can personalize ads and recommend content tailored to each viewer, extending the time each viewer spends on the site — and therefore the ad revenue generated. This also gives the end user a more personalized experience.
Once they build an audience with an ad-supported model, many services evolve into a “freemium” model where viewers can opt into an ad-free experience if they pay a small monthly fee. YouTube did this to great effect. After it became the source of 60 percent of the web’s video content according to Nielsen, it launched YouTube Red, its ad-free subscription option. However, content providers should be wary of switching to freemium too quickly, before they’ve built up enough brand equity that viewers will pay for their content and feel like they are getting something greater in return.
Keep in mind that even though an ad-supported model is free for many viewers, it necessitates some big overhead costs initially. If a provider wants revenue from ads, they currently will need a sales team to sell those ads first, as the programmatic video space still doesn’t have the inventory that would give content owners the ability to monetize effectively. Whether by hiring in-house or contracting with a third party for ad sales, that can be a large upfront cost.
Transactional video on-demand (TVOD)
This subscription model is the definition of on-demand. When customers find a piece of content they want to watch, they pay a one-time-fee, and they’re in. There’s no long-term commitment and no strings attached — just one easy payment per viewing.
Typically, the TVOD model is deployed for content providers that focus on live sporting events, concerts or other content types with a short relevancy window. However, it can also be useful for content under a pay-per-view licensing model. If a streaming video platform has to pay a content creator $2 every time a viewer streams a particular movie, that platform may want to make sure they get paid every time as well, and it is fairly easy to calculate the cost of the content acquisition and delivery charges, to know what it should cost the user to watch that content.
A regular payday per video sounds great — that is, if you can keep it regular. TVOD content providers must make sure customer acquisition is a major priority. These providers need to seek out new customers every time they have new content, instead of passively collecting subscription fees and managing the churn. A streamlined login and purchasing process can reduce friction and quickly turn one-time customers into repeat ones, but if the content is not there you can’t easily forecast overall revenue for the platform day to day.
Download to own
A lot of subscription models involve the consumer paying to access content on a service. Not so with download to own. In this instance, customers log on, download a video once and then own it forever. Since content doesn’t have to be constantly accessible, this model requires less overhead in the long run. That makes it an especially useful model for smaller content providers, including some high-profile stand-up comedians. However, for larger providers, this model has its downsides: for instance, there’s no opportunity to collect viewer data for a more tailored viewing experience.
Recurring subscription
The recurring subscription model is popular among content providers in part because it’s so predictable and gives content owners the ability to focus on two things: content and reducing churn. The customer creates an account and pays the same amount each month, no matter what they watch. A recurring subscription model can also be tiered, so viewers pay more per month for access to a larger portion of the content provider’s catalogue.
Just as with freemium, though, a recurring subscription model won’t work without a strong brand to support it. Content providers need to be sure that viewers will pay cold, hard cash to continuously tune in. Providers also may want to experiment to find out what sort of subscription rate the market will support.
With so many factors at play, it can be challenging for content providers to decide on what subscription model, or mix of them, will be best for their business. That’s why we work closely with our customers to untangle complex business problems using technology. Our platform can conform to any number of subscription models, so that our customers can pivot and adjust as their needs change. We work hard to ensure a convenient and frictionless viewer experience that keeps subscribers coming back again and again, no matter what subscription model is in place.
Get in touch with us to learn how Verizon Digital Media Services can help make your subscription model work for you.
