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The Business Model of OTT Platforms: How they generate revenue.

 Over the past few years, the media and entertainment industry has undergone a massive transformation. The rise of digital platforms has disrupted the traditional media landscape, changing the way we consume and interact with content. One of the most significant changes has been the emergence of over-the-top (OTT) platforms.

In this article, we'll explore what OTT platforms are, how they work, and how they are making money.

What are OTT platforms?

OTT platforms are streaming services that deliver video content directly to viewers via the internet, bypassing traditional television broadcasters and cable providers. They allow viewers to watch their favorite shows, movies, and other content on-demand, at their own convenience, and on a wide range of devices, including smartphones, tablets, laptops, smart TVs, and gaming consoles.

OTT platforms can be divided into two main categories: subscription-based and ad-supported.

Subscription-based OTT platforms require viewers to pay a monthly or annual fee to access their content. Examples of subscription-based OTT platforms include Netflix, Amazon Prime Video, Hulu, Disney+, HBO Max, and Apple TV+.

Ad-supported OTT platforms, on the other hand, offer their content for free, but generate revenue through advertising. Examples of ad-supported OTT platforms include YouTube, Vimeo, and Pluto TV.

How do OTT platforms work?

OTT platforms work by streaming video content over the internet, using adaptive bitrate streaming technology. This technology adjusts the quality of the video stream in real-time, depending on the viewer's internet speed and device capabilities. This ensures that viewers receive the best possible viewing experience, without buffering or interruptions.

OTT platforms also use recommendation algorithms to suggest content to viewers based on their viewing history, preferences, and behavior. These algorithms use data analytics and machine learning techniques to analyze vast amounts of user data, and provide personalized recommendations.

How do OTT platforms make money?

OTT platforms generate revenue through various sources, depending on their business model. Let's take a look at the different ways in which OTT platforms make money.

  1. Subscription fees

Subscription-based OTT platforms generate revenue through subscription fees. They offer their content to viewers for a monthly or annual fee, and use this revenue to finance their operations, invest in content production, and pay content creators and distributors.

Netflix, for example, charges subscribers a monthly fee of $8.99 for its basic plan, $13.99 for its standard plan, and $17.99 for its premium plan. As of January 2021, Netflix had over 200 million subscribers worldwide, generating over $25 billion in revenue in 2020.

  1. Advertising revenue

Ad-supported OTT platforms generate revenue through advertising. They offer their content for free, but insert ads into the video stream to generate revenue. These ads can be in the form of pre-roll, mid-roll, or post-roll ads, or in-stream display ads.

YouTube, for example, generates revenue through advertising. It allows advertisers to display ads on its platform, and shares a percentage of the revenue with content creators. As of January 2021, YouTube had over 2 billion monthly active users, generating over $19 billion in advertising revenue in 2020.

3. Content licensing

OTT platforms can also generate revenue by licensing their content to third-party distributors, such as cable providers, broadcasters, or other streaming services. This allows them to reach a wider audience, and generate additional revenue streams.

For example, Netflix has licensed some of its original content to other streaming services, such as Hulu and Amazon Prime Video, generating additional revenue from these partnerships.

4. Merchandising

OTT platforms can also generate revenue through merchandising. They can sell branded merchandise, such as t-shirts, mugs, or posters, featuring their original content. This not only generates additional revenue, but also promotes their brand and creates a loyal fan base.

Disney+, for example, sells merchandise related to its popular shows, such as Baby Yoda dolls and Marvel t-shirts. This has helped Disney+ build a strong brand and create a community of fans who are passionate about its content.

  1. Co-productions and partnerships

OTT platforms can also generate revenue through co-productions and partnerships with other companies. They can collaborate with production companies, studios, or other OTT platforms to co-produce content, share costs, and reach new audiences.

For example, Hulu has partnered with HBO Max to offer its subscribers access to HBO Max content for an additional fee. This has helped Hulu expand its content library and attract new subscribers.

OTT platforms are revolutionizing the media and entertainment industry, providing viewers with access to a wide range of content, anytime, anywhere. They are also creating new revenue streams for content creators and distributors, and disrupting traditional media business models.

Subscription fees, advertising revenue, content licensing, merchandising, and co-productions and partnerships are some of the ways in which OTT platforms are making money. As the OTT market continues to grow and evolve, we can expect to see new revenue models and innovative ways of monetizing content.

Overall, the rise of OTT platforms has transformed the media and entertainment industry, and is shaping the way we consume and interact with content.

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