Establishing & Sustaining a profitable OTT business

An 8-step strategy for success in SVOD — By Viroopax Mirji, Sr. Industry Principal (M&E)

Planning to enter into a subscription based business for digital video? Well done! First off, video on demand (VoD) is really taking off, because video is hot! Not only is video hot but also subscription VoD (SVOD) is a new all-you-can-eat model, a new binge-watching community with cult-like following and millennials are adopting subscriptions faster than any other industry. The subscription video business world can be very lucrative for those who are willing to put the effort into building a business worth subscribing to.

What exactly makes VOD so attractive? Consumers or your fans like having the power to choose what they want to watch, when they want to watch it. The “Cord cutting” and “Cord shaving” trend continues with consumers favoring a la carte programming. More frequently than before, media and entertainment companies are pouring more attention and money into over-the-top (OTT) video solutions.

Over-the-top (OTT) video services focuses on professional long-form content, such as Hulu, Amazon Prime and Netflix. Each of them saw tremendous growth in subscribers and revenues over the last few years from 23% to 55% YoY on average. More than 41 percent of U.S. homes now access an SVOD service, a Nielsen report says. And among respondents in a recent Digitalsmiths survey, just over 53 percent spend between $6 and $11 per month on SVOD services. These services are called OTT as they focus on the service component and piggyback on a broadband provider’s network for delivery. OTT video can be Linear (e.g. live streaming of current broadcasters’ channels or new “online only” linear channels) or On-Demand (e.g. ad-funded, transaction- or subscription-based access to a library of movies and TV shows). MarketsandMarkets, for example, foresees that the VOD market will grow from $25 billion in 2014 to $61 billion in 2019. This includes a variety of vertical markets, from healthcare and academia to consumer goods and retail.

Whether media firms are offering an online home for their previously broadcast content, creating brand-new content for an exclusively online audience, or discovering ways to feature their series and movies on both linear television and online video, the number and type of services available to consumers aka future fans is dizzying. The challenges in competing with Netflix and Amazon like companies are many but if you have the right content and can monetize it, you will succeed in becoming profitable with these 8 steps:

1. Knowing your audience or fanbase

2. Choosing the right business models

3. Content is king, while Video Quality is Queen: Licensing and Acquisition

4. Build & Operate an experience-driven platform to meet market requirements

5. The 3 P’s : Programming, Packaging & Pricing it just right

6. Make it easy to retain subscribers: rich experiences & frictionless payments

7. Marketing your content — building a strong & amazing brand identity

8. Leveraging big data analytics for profitability

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1. Knowing your audience or fanbase:

a. Understanding the Demographics

The crucial thing for video streaming service operators in the first place is to understand our audience, languages you are targeting, disposable incomes, mode of payments, advertiser interests and devices and platforms being used. Some important questions to consider leveraging analytics (micro-segmentation) are:

• What age group loves watching movies or TV shows online in your local markets?
• What are the gender and the disposable income of the fans you are targeting?
• Where does our targeted demographic currently go to watch various forms of media?
• What type of media do the consumers typically consume? What do they like or dislike?
• How aware are your users/fans of OTT services and are they educated in the use of SVOD?
• How much are fans willing to spend on a piece of content or on a monthly/yearly service?

It is highly recommended to gain insights using not only Nielsen data but also your own local market analytics with tools available from the likes of Ooyala IQ and Infosys Mana for data. You need to know exactly whom you plan to offer content to, what they are interested in, what they don’t like, along with when and where they like to enjoy various forms of content. It’s not a light undertaking. One should think of converting consumers into fans with a way to address all needs.

b. Defining your addressable market

Break up your region into addressable markets. Even if you already own a large amount of content, careful research to analyze your target market needs to be done:

• What size is the market for you?
• What is the market’s general amount of free time to consume video content?
• What is the type of genre of content enjoyed?
• Level of engagement watching video content (movies, TV shows, documentaries, sports)?
• When do your users/fans watch movies most?

Every little detail should be uncovered in early stages. A thorough understanding of what the market is doing will predict not only the type of service to offer, but will also give you an indication of how consumers will react to your service. This is what we call in Infosys as the Fan360 framework that creates a journey from fan building to fan monetization.

2. Selecting the right business models while designing the right experience

So, what’s the best practice for profitable business in OTT? The three major types of OTT offerings include streaming video live, offering video or television content via a catch-up service, and providing video on demand platform or VoD Store.

A live streaming service offers viewers the option to watch specific content live as it happens. ESPN is a good example of this — when a football game is on, viewers subscribed to the live channel have the ability to view it on their chosen device.

Catch-up TV is a type of service that allows viewers to watch television shows and other recently network-aired programs via a personal digital recording device or set-top box. This box will store content for a specific amount of time or limited by the space available on the set top box.

A VoD store (VOD) is a platform housing a library of content where users can choose what they would like to watch. Recent stats indicate that SVOD businesses are getting a constant stream of recurring revenue as long as they attract the right fanbase with the right content and at the right price. You can consider TVOD and AVOD models later as well right after TVEverywhere (TVE) and SVOD are deployed.

So, once you have the appropriate business model in place, the obvious next step is to get rights to compelling and valuable content, create a platform and create the right marketing strategy with attractive packages to offer to your target market.

3. Content is king, while Video Quality is Queen: Licensing and Acquisition

This is the meat of your business. For attracting new audiences and building an eventual long-term fanbase, you will need to focus on valuable in-demand content along with high quality of video. Here is where you’ll need to either acquire content from your group’s subsidiaries or know some excellent negotiation tactics in get the best content from others for your money. You’ll need to refer to the information you’ve gathered about your targeted demographic to choose the right types of content that viewers will value. And most importantly, you will need to know what mix of local and regional content you wish to offer, how you can get your hands on premium content, and how you can garner exclusive rights for content to further drive viewer engagement. Today many of the SVOD operators are starting to use analytics to decide what new original content to create and how to keep engaging with their fanbase for the long term, you should consider the same to ensure the subscribers really convert into fans!

Some best practices noticed in optimized VOD content positioning arena are:

a. Method to the Madness: Test And Learn

“In apps you can iterate very, very quickly,” like Serge Kassardjian (Google) said. “You can A/B test your audiences and understand what’s working.” Data collected from A/B testing should drive which area to put your budget in for development or production and which to let go of.

b. Thoughtful Financing of Device Choices

“Apps are really, really expensive to build, especially for connected TVs,” Kassardjian said. Viewers expect to see your content wherever they choose, so you need to decide which of the multitude of places you want to be. Companies like Massive Interactive are in the market of building intentional & thoughtful experiences on high-usage devices 1st.

A mobile first strategy for video service providers is a high priority for millennial targets.

“We build applications for all of these platforms — iOS, TVOS, Android and FireTV, the Microsoft stack and Roku — and we think it’s important that the user experience be comfortable for that platform,” said Mike Lucero, VP, connected TV strategy, Ratio.

c. When You Build It, Will They Come?

“Whenever apps launch, the first thing that happens is nobody shows up,” Lucero said. Viewers need to find content, and that doesn’t happen without a lot of work. “In the production and entertainment world, the rule of thumb is that 50% of a budget should go into production and 50% should go into marketing.” For e.g. “What we did was get Subaru to underwrite the promotions for the app itself,” Lucero said. “It was essentially a branded content play, which ultimately did very well for both companies.”

d. Engaging in a Long-Tail Model

There’s a niche for probably every interest online. The recommendation is to evaluate if being on all platforms is really something you need. Maybe the audience can still find you on fewer platforms.

e. More Niche = Good Business

“We are the ultimate niche. No one thought gaming was big,” said Colin Carrier, chief strategy officer for Twitch. “These niche experiences and communities are getting created around different products that have a chance at breaking through the competition for pure content, and have a chance at extending to something else.”

Next, content without an online video platform (OVP) isn’t an OTT service at all. As you build your strategy you’ll need to consider your options in developing the right platform to stream your content library.

4. Build & Operate an experience-driven platform to meet market requirements

There are several options available when building or selecting an OVP but the most important decision is keep it ‘Experience-driven’ so you can build an appropriate fanbase along with fan insights, fan engagements and fan monetization built-in. You could build a video platform from scratch internally, integrate and adapt a current platform for your new market and business model, or use a well-integrated third-party solution like Ooyala + Vindicia + Massive Interactive + Gigya identity management to specify a platform that exactly meets your needs and make it even more future proof as a componentized and modularly scalable stack.

If you are building a platform from scratch or adapting an existing one internally, carefully consider the amount of internal resources you will need to allocate for an undertaking and the total cost of ownership (TCO) along with ‘speed to market’ factors. Someone has to pay for the CDN bandwidth. Depending on volume, that cost could be anywhere from below a penny at Akamai scale to $0.12 per GB for Fastly, a startup CDN. And someone has to pay for building and maintaining the software and hardware it runs on. That is not easy nor cheap. On the surface, it may seem like all you’ll need to spend less with a black-box approach, however it will likely end up becoming an endless obstacle course unless your business is small and fairly short-termed.

The easy answer may not always be the best, or most affordable answer. Just a few things you’ll need to plan for will indeed call for talented developers, but it will take more than a couple (more like a team) and definitely more than a few weeks (try a few months or years.) Additionally, you’ll need resources to:

- Design the platform interface (front, management consoles, analytics and backend)

- Code your platform to fit various device and application specs (such as a many Smart TV platforms, Android, IoS, Xbox one, PS, Roku box or Smart TV apps)

- Design the eCommerce, Support & Care portions for processing payments & troubles

- Integrate a digital rights management solution to protect your content

- Insert logic for geo-fencing in CDNs, set processes for Ingest-Transcode-Distribute, Workflows and approvals, Quality control, A/B testing, etc.

- Integrate systems, aggregate usage data and build automated processes

In fact, the amount of resources needed is typically so extensive that most folks jumping on the SVOD business wave are preferring to use cloud-based SaaS or Managed Services platforms from large global systems integrators.

Have you thought about identity management and social profiling? Gigya like companies allow you to solve the most elusive puzzle of identifying and tracking user behavior in social circles while making it easy for targeted consumers to be converted into fans. Perhaps the most important attribute of a successful SVOD brand is the support of a strong subscription billing platform (for e.g. Vindicia). The right subscription billing partner can help video companies reduce churn and increase customer loyalty. A nimble subscription billing platform also helps companies provide a number of different subscription offerings to meet the needs of customers, as well as easily offer promotions and upgrades to thank loyal users. Ultimately, taking advantage of SVOD is all about customer retention, and a high-quality subscription billing partner is essential.

Designing internal workflows for content provisioning & integrated efficiencies

From the back-end of development of a platform, to the front-end handling user requests and issues, you’ll need to put workflows together that will assist the various teams of resources needed to serve up content to your consumers. As mentioned before, you’ll need systems integrators, technical engineering people to develop a platform, but you’ll also need teams to handle support requests, eliminate bugs and other code issues, and still more people to handle the ever-increasing demand for offering your platform on additional devices. Note that most SVOD service operators are now ramping up to add Care agents and billing advisors as you end up adding new sophisticated packages and business models (for e.g. TVOD, EST, AVOD).

5. The 3 P’s : Programming, Packaging & Pricing it just right

You’ll need a cohesive plan for promoting your handpicked library. You’ve spent the time curating the content you feel is most relevant to your audience — now you need to package it in a “can’t say no” manner.

At this stage you have to strategize on the best way to bundle your content, to figure out your plan for emerging channels and plot the right method for promoting and distributing special types of content. Your pricing strategy goes together with packaging, leading us to better programming combined with pricing it just right for your fanbase. You can’t randomly choose a price for your content you think resonates with your market. It must be based on the scientific research you’ve gathered. The factors listed below allow you to determine the right price that your market is willing to pay.

- What is the cost to acquire your library of content

- The quality of the content you offer

- What your competitors are charging for similar content

- How many competitors are vying for the same market

- The quantity of content (this includes your overall library and the amount of content within specific categories such as genre or content format)

Packaging and pricing your content is a science and directly relates to previous steps. As you are determining price, it is important to consider the type of revenue model — such as an AVOD, EST/TVOD or SVOD model. The size of your market and how many subscribers or viewers you attract will give you an idea of what type of advertisers you can attract which means you need to have a strong marketing strategy in place — first to launch your offering and to continually grow your audience base.

Finding an appropriate pricing strategy is also key. SVOD consumers tend to be price-sensitive. In many cases, younger consumers are unwilling to pay for these services at all and instead choose to share accounts with family or friends. According Fierce Online Video article, millennials would rather watch ads on a free channel than pay. SVOD providers need to find a good balance between content offerings and pricing. A subscription fee that is too high will turn away viewers no matter what, but many consumers are willing to pay for high-quality services.

6. Make it easy to retain subscribers: rich experiences & frictionless payments

1. Ensure Multi-channel, X-device experiences (for e.g. with Massive’s AXIS)

2. Design intuitive interfaces (mobile, tabs, Web, TV) with maximum coverage

3. Create effortless playback & return experiences on screen (and via websites)

4. Allow for Auto-Discovery and binge-watching (for e.g. with Ooyala Discovery)

5. Offer discounts to long-term subs, rental VoD conveniences, portable downloads

6. Make renewals automatic and seamless without need for call center

7. Allow prospects and new customers to trial new content and features

8. Add some unique content no-one else does (e.g. localized reviews, ratings, comments) and personalize it using identity management solutions like Gigya.

9. Release content over time, keeping it always fresh and engaging. VOD service providers have added popular content to their libraries, including the latest in films, music, and other content.

10. The availability of customized content is also helpful in engaging consumers. Consumers demand a unified VOD experience irrespective of their location. Therefore, service providers are striving to develop user-friendly menu options and recommendation engines so that consumers are not confused by the extensive pool of content available. This ensures enhanced user control over program selection, and also gives operators an edge over competitors who have poor interfaces.

7. Marketing your content — building a strong & amazing brand identity

Marketing your OTT service may seem like a throwaway component. Many new service providers consider it as an optional step to launching a video service. They are wrong. Marketing is one of the most crucial pieces for a successful launch. You know the adage “If you’ll build it, they will come?” Well in the OTT provider industry, if you build it, you MUST market it, or you risk being lost in the ether. Positioning your service by pulling out key differentiators, telling your brand story and how it is different from your competitors will resonate in the minds of your targeted demographic and grow your subscriber base. Leveraging Facebook, Twitter, Instagram, Snapchat, SNs can add value in a fanbase.

8. Leveraging Big Data Analytics for Profitability

a. Optimizing the content mix via machine learning

Make sure there is a good assortment of local and international videos available based on big data analytics on user consumption pattern analysis. Slowly add new videos as the customer progresses through the stages of the current lessons. You wouldn’t see Netflix offering every movie all at once (check it out, they don’t). Some people would watch everything they want at once then soon they would have nothing left to watch. After that, what would be the motivation to keep them paying for the subscription? Nothing! So be sure to always have something fresh to offer on a regular basis.

The use of your base information along with the analytic data you pull from audience engagement will provide you the direction for next steps. It will allow you the opportunity to hyper-personalize, or specifically target each viewer’s experience. It gives you the chance to integrate your branding story in sync with the everyday movements of a viewer, so that they will turn to your service first. Proper data analysis will set you far ahead of the competition.

To do this you’ll need to ask additional questions of the data you gather from your subscriber base. From this you can examine the results to determine what type of future content you need to acquire — whether or not you need to shift your business model, and help you determine how hone your marketing strategy.

It is important to track every step of your customers’ path through the funnel that is your sales cycle, consumption cycle and retention cycle, to ultimately decrease churn (losing customers over time). Use audience measurement dashboards, Youbora + Ooyala IQ + Salesforce.com analytics and set up conversion funnels to see how your customers/fans do, exploring your website on their way to a sale, and where you may lose some.

b. Optimizing the revenue mix for better profitability via analytics

So what the trick to balancing profitability with long-term scale up of your audience engagement? We need to keep tracking fan-building activities while checking their consumption patterns, spending habits and new behaviors with payments. Also, track events that may be leading up to potential unsubscribe/cancellation clicks.

Other key metrics to consider are:

• MRR (Monthly recurring revenue)

• ARPU (Average revenue per user)

• ARPPU (Average revenue per paying user)

• ACLV (Average customer lifetime value)

• Social recommendations & NPS scores

Use the data to understand how much each customer is worth to you, decide on how much you want to spend in advertising to gain each customer, and how much you want to spend to retain each customer. Somewhere in that info there is a perfect balance of expenditures vs. revenue. You can correlate with # F which talks about right price-point.

After going through the above, are you thinking ‘are all these things truly necessary?’ Even if you are starting small and projecting the type of growth you want to achieve, you’ll see that a proper assessment of each step is crucial to meeting your ROI & profitability goals.

Finally, in summary here’s the high-level formula for making money with online SVOD:

1. Make compelling content.

Sometimes less is more when you’re trying to connect with an audience. In the end, don’t forget to make it entertaining.

2. Market it appropriately.

You’re going to need an audience or a fanbase. You can do it using features like Clip & Syndicate, building your own Facebook/Instagram/Twitter fan page with 70,000 followers in 2.5 months, or by including fun interactive features inside your player. Build amazing experiences.

3. Build intelligent media operations

While most service providers leverage automated processes, you could leverage holistic intelligent media logistics and operations which would use AI (self-learning, self-healing) techniques alongwith NLP, Machine learning systems to maintain highly efficient, cost-saving measures for your operations and IT teams. Infosys provides purposeful AI via Mana suite of solutions to ensure that your teams can be operationally efficient and optimized in cost savings.

4. Monetize it.

You’ve only got three options to make money once you have compelling content and an audience to watch it: 1) You can charge on an individual show basis (TVOD) or retail ones (EST); 2) Advertising (AVOD): using VAST compliant players and VMAP compatible cue points, use video ads before, during, and after your program. The CPMs are higher with video ads than with display, but you might find it hard to get enough relevant inventory; 3) Subscription (SVOD): like Netflix, you can charge people a monthly fee to get access to your library of content. Starting at $4.99 per month for unknown content one suggests up to $7.99 for more premium, well-known content. Obviously your market’s willingness to pay and access to that content from other sources will determine how much of a premium is possible. If you’re going into a small territory in remote areas, you might not be able to charge a premium even though you’re the only provider simply because of the disposable income of your audience.

Over the Top (OTT) video services came into the spotlight in recent years with the success stories of different players positioned in different market segments. Netflix, the leader in SVOD, earned $6.78B in worldwide revenues while HBO reported $4.74B in OTT in 2015. Their IT spends were 9.6% and 16.34% of revenues respectively.

Hulu, the centralized catch-up TV /ad supported VOD platform, is the number one video website in terms of ad impressions, far ahead of YouTube despite having only a fifth of the audience of YouTube. iTunes rules the transactional VOD (TVOD) market with a 60% market share despite the efforts of competing heavyweights with deep pockets (Amazon, WalMart/Vudu, Microsoft/Xbox Live, Google/YouTube rental store). What all these services have in common is that they are delivered over unmanaged networks. They also all leverage premium content that has demonstrated ability to garner a large audience. Finally, they all have an international reach, providing distribution agreements with content owners. In each of these verticals, the competition is not based on price. Instead, they compete on the device environment that goes with the service.

In summary, the market for streaming SVOD is growing fast. The future of SVOD business is in the hands of those who think smartly and apply intelligent media operations to reduce costs while maintaining a well-oiled, optimized SVOD stack which can generate a very large set of new revenue streams as they leverage personalized, programmatic methods for fan engagement. This is creates a higher range of profitability for OTT service providers. A new report from Research and Markets predicted 306 million homes will use SVOD by 2020, up from an anticipated 161 million (2016) also global SVOD revenue will reach $26,794MM (2020). Most importantly, why can’t your business ride this wave and achieve greater profitability via smart decisions!

Whitepaper by VirooPax Mirji, Sr. Industry Principal and AVP M&E industry
Infosys Limited, Palo Alto, USA.