Basic Guide to Online Streaming Business Models
Posted on October 22, 2014
Multimedia streaming business models come in a variety of shapes. The dimensions that define the different models are monetization strategy and revenue source.
The monetization strategy defines what exactly is being sold. The streaming industry offers a variety of services that can be sold such as ads (pre-roll, mid-roll, post-roll, and surrounding), media access: per time unit, subscription, and streaming as a service (SaaS).
The revenue source is represented by the advertisement company that provides the ads, end-users who consume the broadcasted media or clients that consume the service offered through APIs.
It is worth mentioning that one can use a combination of the following models to build a remarkable and profitable streaming business plan.
Let us look at some streaming business models and their characteristics.
The freemium model is entirely based on ads. Basically, some content is offered to end-users and the number of impressions and interaction with the ads generates revenue from the advertisement company. Most often, the ads are pay-per-click, so when a user clicks on an ad, a small amount of money is added to your account. More advanced schemes pay commission after successful registration rather than pay per click.
This model relies on massive user engagement and by itself, it usually does not generate much revenue. However, it is often used together with the other models as a complementary monetization source or even as a sample for paid content to entice users to buy the premium services.
One challenge in sustaining this approach is handling massive traffic. Because you offer a free service, a lot of users could be hitting your servers. That is great, but infrastructure design and implementation costs increase with higher traffic demands. Scalability is often neglected especially by start-ups in order to decrease initial costs and time-to-market. Thus failing under traffic peaks and quickly losing customer engagement. That being said, the freemium model demands careful planning in terms of technology, scalability, and infrastructure.
We turn towards paid models now and focus on the pay-per-view model, also known as PPV. It requires users to pay as they consume content. A video, for example, will charge the user’s account a fixed amount of money (or credits) each time he views it. It is worth mentioning that some more advanced models only charge the user the first time he accesses a media item, or charge subsequent accesses only after a predefined timeout (a day or a week). That is done to rule-out possible service interruptions during the first playback and give the user a sense of temporary ownership over the content he paid for.
The approach demands complex services to authenticate and charge the clients. After development, the running costs are no higher than those of the freemium model.
The pay-per-minute model is similar to the pay-per-view model. The only difference is that it charges for every minute of media consumed by the user. It is seldom implemented because media items are usually perceived as units. However, it may be a viable model when charging content providers. For example, a TV station that uses your platform to reach more viewers could be charged by the minute for broadcasting. This is more of a combination of the pay-per-minute model with a service provider model.
By subscribing to your services, the users have access to the media content until the subscription expires. By implementing different subscription categories, you can limit accessible content and encourage subscriptions to multiple packages to diversify revenue. Combined with free samples to convince new users to subscribe and some ads placed within the platform, the subscription model is an attractive option for most streaming businesses.
Providing streaming as a service could be the most complex model. It is perhaps the hardest to implement in terms of design, development, and infrastructure. The platform needs to provide interfaces for others to use your platform, store content and embed players into other websites. Also, the infrastructure needs to be able to scale quickly as it now has to provide services for immediate clients and the clients’ clients. The end-user base could rapidly outgrow the capabilities of a poorly designed platform and thus service performance would degrade.
Of course, the service users could pay through a subscription model or pay-per-resource (time, traffic, storage, number of channels, etc.). A much more difficult feat to achieve is allowing the clients to monetize on their end-clients. That implies building an extra tracking system pretty much doubling the design and implementation effort.
As a conclusion, it is recommended to combine two or more models to maximize revenue. Scalability should be one of the main priorities when designing the streaming platform regardless of business model. A quality streaming service could make up for a suboptimal business model, but a perfect business model cannot make up for poor service.