- There are three models for video OTT today: SVOD, TVOD and AVOD
- AVOD (advertising-based VOD) makes up over 50% of the total VOD market
- For telcos, AVOD provides a sizeable revenue opportunity from ads and mobile identity
Where do you think people will be watching the next season of Game Of Thrones? On their couch with eyes glued to the TV? In most cases, you would be wrong. The majority of online video is today consumed on mobile phones and tablets: 54% in EMEA, 65% in LatAm and a staggering 74% in APAC.
Video content becoming mobile-first signals a great revenue opportunity for telcos. User acquisition, digital identity and payments solutions offered by telcos work best in mobile environments and this is where the OTT industry is headed.
Telcos have already actively taken up the opportunity. Most frequently, the partnerships involve payments for VOD services through direct carrier billing, but also bundle partnerships, which have today been launched in more than 80 countries.
Don’t ignore 50% of the VOD market
The majority of OTT-telco partnerships are focused on monetization of paid content. These OTT services use either a subscription-based model (SVOD, where users pay for access to the entire content catalogue through one weekly or monthly payment) or transactional model (TVOD or à la carte, where users purchase access to individual TV episodes or movies). But there is a third business model for VOD companies that telcos have so far mostly overlooked: AVOD.
AVOD (advertising-based video on demand) means the video content is given out to users for free and much like traditional TV, advertising is shown between streams. YouTube is the best known AVOD service, but there are many others out there, including iflix, Roku, Crackle. The model is also used in music by the likes of Spotify and Deezer.
Today, AVOD makes up almost half of the entire VOD market. The total market stood at $53 billion in 2017, AVOD generated $27 billion, with SVOD/TVOD generating a total of $26 billion. There is room for growth for all three business models, because the user cases are different.
Due to its model focused on advertising, AVOD works best when the audience is large (bigger ad reach) and the content is short (more frequent ads). It’s also the model that should be used when the audience is unable or unwilling to pay for content, for example educational content for kids (who should not be expected to pay, and monitored ads can be used instead) or a corporate audience (for whom DCB is barred).
Using one model does not exclude the rest, for example OTT-s can combine AVOD (for a free tier of the service) and SVOD (for premium features, including getting rid of ads). The same goes for music services, as Spotify is doing with its free and Premium tiers.
AVOD revenue for telcos: ads and mobile identity
If the content is free, where is the business for telcos? The answer is advertising and identity management. Advertising inside AVOD services can be used by telcos for two purposes:
ad revenue, by having a revenue share deal in place with the AVOD for users brought in through telco marketing channels
revenue from mobile identity; AVOD networks need to manage their user identities and since the business is mobile-first, the user’s MSISDN is the perfect solution for this
user acquisition, by having AVOD target the telco’s ads to users who are on competing mobile networks
For telcos already working with SVOD services, it makes sense to check on their partners plans: whether they also use the AVOD solution or do they have it planned.