As the world scrambled to deal with an out-of-control Covid-19 and compulsory quarantine, video on demand (VOD) saved many from dying of the other pandemic – boredom. In the last three years, VOD has witnessed explosive growth with multiple media companies launching their own subscription services and building fan communities to keep the engagement going. At over a 10o billion minutes of viewership in just one month, and counting, the streaming era here is to stay.
Video on demand allows users to watch pre-recorded content anytime, anywhere, as long as they are connected to the Internet. Some companies are taking things a step further, providing offline downloads to aid viewer convenience. These online libraries are now the preferred drug of choice for the younger generation, who especially enjoy binge watching TV shows and movies. The appearance of control that VOD gives in terms of allowing you to play, pause, fast-forward, and rewind content has allowed it to become the preferred form of content consumption.
According to Market Watch, the global VOD market is set to grow at a CAGR of 11.2% to $156.9 billion between 2022 to 2030. Major players in the VOD streaming arena include Netflix, Apple TV, Amazon Prime Video, Disney+, Hulu, YouTube, and HBO amongst others.
What is Video on Demand (VOD)?
A video-on-demand platform allows users to access its online library of content through subscriptions, rentals, and downloads. From mindless entertainment to online learning, everything has a place in VOD.
Disney+, Netflix, and Hulu are prime examples of VOD platforms that allow users to control their content consumption.
As streaming services grow at a breakneck speed, new terms have been coined to bifurcate the audience who have switched over to VOD platforms and those who stick to traditional TV.
The Nevers – Those who never considered traditional TV important and signed up for streaming services, when opportunity presented itself.
Cord Shavers – Traditional TV watchers who pay for subscriptions channels and have now shaved off their subscription TV budgets to accommodate streaming services. They enjoy the best of both worlds and access all types of media.
Cord Cutters – This set of audiences have canceled traditional cable TV subscriptions and switched over to streaming services as it gives them greater control over content.
Since VOD is streamed via the Internet, it can be accessed using any device — smartphones, laptops, smart TVs, or personal computers. VOD platforms also offer different packages based on price and access points, for households, working individuals, and students.
The three main types of VOD business models are:
- Subscription based Video on Demand (SVOD) – SVOD models offer access to their content libraries for a fee. For example, Netflix or Amazon prime.
- Transactional Video on Demand (TVOD) – TVOD models are catered toward a nice audience. Customers enjoy exclusive access or can buy individual videos for a fee. For example, The Try Guys videos on Patreon or Sky Box Office.
- Advertising Video on Demand (AVOD) – AVOD generates revenue for the content creator by letting subscribers watch videos for free in exchange for watching some ads along with the videos. For example, TikTok or YouTube.
Out of all the revenue generated in the OTT market for 2022, SVOD was responsible for 40.16%, TVOD for 5.1% and AVOD had the biggest share with 51.58%.
Growth and subscription
In January 2023, market research group Nielsen reported in The Gauge that broadcast and cable viewing declined by 3.7% and 2.4% respectively in December 2022. Its data showed that streaming services are slowly edging out every other player in the market. December included five days that boasted more than 100 billion viewing minutes.
VOD platforms are constantly competing with each other to attract and retain customers. Most offer free trials for a fixed period, before giving customers a choice between different priced models. Recently, even Netflix started offering ad-supported models after declining profit margins affected its stock and growth prospects.
Cloudwards found that 85% of US households have at least one VOD subscription while 60% have at least one paid music streaming subscription.
In the last week of December 2021, the US audience streamed a total of 183 billion minutes, or in other words, streamed enough to watch continuously for 348,173 years straight.
So, how do they do it? How do VOD platforms bring in customers who have no idea what their offerings are?
The three ways in which VOD platforms hook customers are as follows:
Free Trials
Some VOD platforms offer a free 30-day trial, to give you a taste of what it feels like. They operate on the hope that once you get addicted to late night binges, you will sign up for a paid version. A free trial is the company marketing its goods and services to you.
In exchange, they also receive your information and when you choose not to sign up, they send you reminders and teasers to trigger your fear of missing out.
A free trial is also key to letting customers familiarize themselves with the product. Deals are strategically placed to get customers in the door, and streaming services have seen resounding success with free trials.
Analytics firm Antenna noted that in 2021, the success of converting free trials to paid subscriptions improved +2.3 points from the year prior. Discovery+ (81.4%) and Peacock (77.9%) had the highest trial conversion rates, as per the study.
Colin Dixon, chief analyst and founder at nScreenMedia, told Streamable, “Free trials are an extremely effective way of converting people to subscribers. When I talk to companies that track it in detail, what they usually tell me is that between 50 and 70% of the people that sign up for a free trial convert to a paying subscriber.”
On the other hand, it can also backfire if you are a mammoth service with an inexhaustible library. Netflix and Disney got rid of their free trials after studies showed that most consumers would binge content during the trial period and not bother to get a paid subscription.
However, there is no denying that for up-and-coming streaming services, free trials open up the window of opportunity. Seasonal deals and free trials play an important role in convincing customers to switch priorities in a saturated market.
There are currently over 300 VOD platforms in 100+ countries competing for market dominance.
Freemium Subscriptions
A bridge between free trials and paid subscriptions, freemium subscriptions please the consumer and video provider.
Yet another tactic to keep the audience hooked to one’s own channel, taking away from the competition, freemiums allow customers a taste of the goods for free. If they find themselves thirsting for more, they must pay up for access.
In a freemium service, VOD platforms offer a watered down version of the original product. With limits on what can be viewed, streaming hours, and usage quotas, streaming services allow the customer to enjoy content in a controlled manner.
Although freemium models attract a lot of prospective customers, conversion rates are low. Freemium acquisition models are tough on the company, as the customer makes no financial commitments but they can be used to subtly lure in the consumer.
Tiered Pricing
Most VOD platforms offer tiered pricing as they want everyone to be logged in to their service. Customers are offered different packages with varying features. While one tier might be an ad-supported model, another would be ad-free, and yet another might mean simultaneous access to multiple devices.
Each segment is tailored according to market needs and customers can take their pick of the pricing model.
Netflix is a great example of tiered pricing that is affordable for everyone. The streaming giant offers four monthly plans – Basic with Ads ($6.99), Basic ($9.99), Standard ($15.49), and Premium ($19.99). Users get access to high-quality video and ad-free models based on their subscription.
OTT services offering tiered subscriptions have become the norm as it gives audiences flexibility on budgets. The evolution of streaming platforms from highly-priced models to custom-viewing experiences show us how much content consumption has changed in the last decade.
With the market becoming saturated with multiple players, content creators must find new ways to stay relevant and scale their offerings.
In a survey by Cloudwards, 15% of people admitted that they spend $50 or more on video streaming services per month. When you have multiple subscriptions, it is important to have access to budget-friendly plans. And tiered piercing is the answer to your prayers.
Future prospects of VOD
A Deloitte study revealed that digitization will substantially change production processes and the distribution of content. It has already started with some streaming services skipping theaters and releasing top-notch content directly on their platforms.
With linear television still maintaining a stronghold over live content such as sports and major events, audiences have been unable to do away with cable TV in favor of streaming services. Rightly identifying the customer base of this market, streaming services are working on deals that will enable viewers to livestream such content.
For starters, Disney has made agreements with many different sports rights holders, such as the NFL, MLB and NHL, to name a few. But getting the right infrastructure and legal rights in place to stream live events is an uphill task. It is one of the last frontiers to conquer for VOD.
Ad-based services could be more personalized as platforms have access to rich user data and what interests them. Analyzing this data makes it easier to optimize content and advertising for the benefit of customers.
Market regulations might play spoilsport as OTT platforms grow bigger with each passing day. For the better part of two decades, VOD platforms have been free from the stricter regulations that govern traditional TV. As OTT players enjoy substantial creative freedom, their content is diverse and entertaining. But this might change slightly in the future. Governments might implement certain regulations on OTT players in the future. Content creators worry that this move will negatively impact their delivery and audiences.
In coming years, VOD might even be able to combine interactive storytelling with virtual reality (VR) offering audiences a means to escape reality through immersive experiences. Some streaming services already offer a library of games, along with traditional shows and movies.
In January 1996, Bill Gates wrote, “Content is King.” And it is still true for now. But to scale up and keep viewers from wandering off to rival channels, VOD platforms must build up their content libraries and technological infrastructure.
