Will hybrid business models fuel the next stage of OTT growth?

Will hybrid business models fuel the next stage of OTT growth?

May 31, 2022 | 4 min read
about, AVOD, FAST, hybrid business models

Stuart Boorn, Vice President Marketing and Sales Engineering, MediaKind

While building and operating video-on-demand (VOD) streaming services is well understood, delivering large-scale live events at broadcast quality and scale represents our industry’s next biggest frontier. What comes with this maturation of the business is an added layer of complexity in how streaming providers monetize their services – blending subscription, transaction, and advertising in a tailored package for each of their audience segments. Understanding the core elements that will fuel the next OTT growth will help media companies rapidly roll out new services while retaining the core functionalities of a successful, engaging, and valuable service.

What are the key drivers towards creating effective hybrid business models?

If we take a positive outlook, the OTT market is maturing and becoming a significant part of any distributor’s future business plan. The shift towards hybrid business models is, therefore, a natural approach. However, there are perhaps two larger trends that we should all be aware of. The first is the type of model brands adopt. They must be able to understand their market. For instance, is it feasible to push beyond their offering beyond traditional borders, whether that’s domestically or internationally? Ultimately it comes down to what’s appropriate for each subscriber base. That will be based on how each audience consumes the brand and how the brand can move that relationship forward so that they are even more deeply engaged and involved in their content offering.

Other factors to consider involve entities that can’t scale for various reasons. That could be because they are part of a very fractured marketplace. Or it could be because there are so many different broadcasters in each individual country that scaling the business outside of the domestic borders is too great a challenge. It’s easy to think about big markets like the United States, but other countries and markets may be limited in their ability to achieve that same level of scale. Instead, for these entities, the challenge is to concentrate on developing that scale over a more extended period. They need to learn how to address their audience’s needs, and at the center of that is access to data.

Without data, it’s virtually impossible to understand your audience, the requisite pricing models, potential sensitivities, what makes for impactful advertising, and to make reasoned experiments with new content and services. Without this experimentation, it’s impossible to generate any meaningful insights or actionable analytics that can enable a business to evolve, monetize, and continually manage complex viewer needs. Too many first-generation streaming platform services were launched with the sole intention of “getting the job done” – i.e., just delivering content. Now, to monetize the second phase of this new digital era, we need all content owners and service providers to respond to the market’s maturation.

What are some of the challenges in supporting a hybrid business model?

Once you look beyond the complexity of understanding consumers, including where they are, what they are prepared to do, and what they’re willing to pay, it’s time to consider wider-use cases and purposes for that data and insight. A good example is what you see commonly in sports markets, where sports league teams look at the video service revenue as essentially just one part of a wider revenue stream from that fan. Thanks to other indirect mechanisms, the revenue they expect to earn from that fan is much higher. For instance, they look for ways for their sponsors to target specific, highly engaged fans and deliver relevant content that resonates with them. That could be anything from presenting the latest automobile or even their favorite soda.

Then they can also look at how people interact at the venue itself; is it possible to deliver an alternative to the physical product and move some of the merchandising efforts into a digital enterprise? How might they install a fantasy gaming function? If the jurisdiction allows, perhaps this could extend to actual betting too? It’s a complex process to monetize opportunities from the existing consumer base. But to have an opportunity to make hybrid business models successful, you need to first interact with the fan. In my view, our industry is only just entering this space and scratching the service. You need to build a loyalty program into these services to optimize future revenue models.

What will the business models in this space look like in the future?

The OTT space is exciting, and, in the future, a lot of the content will have a deep brand association and connection. This is a big opportunity for advertisers – what way can they get behind certain services or campaigns? Or will we see a lot of in-house advertising instead? Will OTT providers want sponsors?

To an extent, I think there will always be a certain amount of sponsorship in this space. 10 years ago, in the US, there was HBO and Showtime and the likes of ABC and CBS. The North American model has a degree of complexity, and it’s not going away any time soon. But if we look across the Atlantic, there’s probably less of an appetite for advertising disciplines in Europe. That’s a cultural difference; in Europe, it’s more appropriate to look for transactions with individuals or a subscription transaction instead.

However, in either instance, adapting to a different set of modeling systems will provide the necessary freedom to experiment and try different services and opportunities. That level of choice, flexibility, and quality of service are the all-important factors for consumers.