Understanding the Economics of SaaS

Understanding the Economics of SaaS

By Arnaud Caron, Director Portfolio Transformation, MediaKind January 7, 2021 | 4 min read
aaS, AWS, Broadcast, CAPEX

Organizations in all markets are beginning to understand SaaS’s value – it’s a rich combination of innovation, security, usability, and cost benefits. As a result, the public SaaS market’s total size in 2020 was projected to reach $157 billion, more than doubling since 2014.

The media and entertainment industry is no exception to this trend, and content owners, broadcasters, operators, and service providers are quickly embracing SaaS workflows to futureproof their deployment models. However, the adoption of SaaS within media requires a slightly more radical shift in thinking, as its functionality differs quite significantly from other deployment models.

The True TCO of SaaS

For any media service deployment, costs relating to the acquisition, operation, and over-provisioning of content and data must be factored into the equation. Understanding how the Total Cost of Ownership (TCO) and performance benefits of SaaS compare with other models can help media organizations better understand its value.

The most considerable cost associated with any media service deployment relates to infrastructure. An on-premise deployment includes not only infrastructure purchase costs (CAPEX) but also peripheral costs. Running a large datacenter means expenses related to power, AC, operations for racking, cabling, replacing parts, and general monitoring and maintenance.

Furthermore, the cost of on-premises infrastructure is typically valued at the peak cost plus a margin, to ensure any unforeseen costs are factored in. This means that a significant portion of the investment in infrastructure is never usually used. As a result, additional OPEX costs are needed as workforces need to maintain and evolve unused infrastructure.

When considering key public cloud infrastructure costs, ingesting content and data into the cloud is not hugely expensive, if not even free, and broadcasters can now do this in a reasonably reliable fashion. However, the cost of processing this content differs between use cases. It is usually in the form of a non-permanent processing function (such as pay-per-use) or can embody a more attractive pricing structure in the form of a fixed, permanent processing contract or by using pre-committed resources with a cloud vendor.

Egress is another reasonably high cost to consider, which relates to on-premise CDNs and public cloud/on-premise expenses in the context of the media industry. Here, a pre-agreement with cloud vendors and CDN providers can make this a low-cost option, particularly when connected to a partner CDN. Either way, the broadcaster or service provider will ultimately have to pay to deliver its OTT content.

Broadcast distribution solutions, such as satellite or public cloud delivery, are yet further considerations. Not only costly, satellite delivery is usually limited to specific regions, compared with the global nature of public cloud and SaaS. This pipeline quickly adds up to an expensive and complicated solution with many touchpoints to manage. The operational and delivery costs of SaaS reduce these expenditures and make it an inherently global solution.

Getting More for Less

SaaS offers the entire media delivery and processing package as an end-to-end solution, providing flexibility and significant cost savings. Broadcasters and other media operators increasingly want self-service solutions available within the broadcast marketplace while maintaining broadcast quality. A SaaS approach offers these as a comprehensive user interface focused on key applications and an agreed set of application programming interfaces (APIs), available pay-as-you-go, easy to use, and pre-integrated. Vendors can then develop a ‘multi-tenant’ solution that fits the needs of multiple use cases.

Another notable benefit of SaaS is that the infrastructure platform and various service levels are all actively monitored by the SaaS provider. SaaS providers will bundle this service into the overall pricing. This pre-committal payment system is a lot cheaper to use than pay-per-use and removes the complexity and stress of managing multiple touchpoints.

For the media and entertainment industry, these benefits are apparent. Having the entire deployment pipeline pre-integrated and executed by a single cloud vendor means broadcasters can deliver rapid deployment times for new media services, maximizing revenue, and boosting engagement with audiences. SaaS also offers incredible operability without the need for highly skilled cloud, video, and IT staff. Instead, these challenges are all left to the SaaS provider, which helps to improve efficiency and control costs, and focus on the actual media business versus peripheral constraints.

SaaS is now a tried and tested solution for content owners looking for new ways to reach their audiences, particularly when the global media rights market is becoming increasingly complex. The recent MediaKind 2021 Sports D2C Forecast found that D2C (Direct-to-Consumer) is becoming an increasingly important element in rights-holders’ media strategies. However, it also found that stability is the most crucial factor in delivering a successful OTT service. To develop an effective D2C OTT service that meets a content owner’s audience’s needs, the stability, scalability, and flexibility offered by SaaS make it a sensible choice.

Overcoming Apprehensions

Once broadcasters and other media operators begin using SaaS and drive their properties with this model, it will no longer be seen as an alternative solution to deploying media services. To realize this, the industry needs to adjust its habits and accustom itself to the realities of the modern media landscape.

The end-to-end ecosystem can sometimes be harder for media and entertainment players to understand. However, they ultimately have to accept that an open and integrated approach is precisely what they need to drive the industry forward – even if it comes at the expense of losing some control over the delivery pipeline.

SaaS is truly an investment for the future. It offers a simple way to begin the cloud journey without needing to invest in significant technology infrastructure and skills, or rely on experts. Many live events have already begun testing and trialing SaaS platforms to reach their audiences amid COVID-19, and we can certainly expect to see this trend continue into 2021. For this to happen, broadcasters first need to find the right partner, build the right solution, and decide what cloud model they want.

Stay tuned for part 2 and three of this blog series, exploring the applications and use cases of SaaS!

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