Is a hybrid approach the future of OTT?

Experts look at the growing OTT industry and how advertising, as well as subscription models, will benefit the market

by Team PITCH
Published - October 27, 2022
6 minutes To Read
Is a hybrid approach the future of OTT?

The OTT industry is constantly evolving. The cord-cutting trend continues with more and more viewers completely shifting to OTTs as their preferred mode of entertainment. In 2022, people have a vast variety of options to choose from.

Getting its initial boost from the pandemic, the OTT industry now stands at a crucial juncture with people now out and about. It's interesting to see how the industry will evolve in the post-pandemic world. Some experts believe that a hybrid between Advertising Video On Demand (AVOD) and Subscription Video On Demand (SVOD) could be the way forward for the industry.

Once a pandemic darling, Netflix, saw a massive dent in its revenue this year. It struggled to not only keep the money coming during a rocky economy but also up dwindling subscriber growth.

Recently, it announced the move to an advertisement-based subscription model, something Netflix’s chief Reed Hastings always opposed. The ad-supported service is set to launch in November, although India doesn't figure in the initial list of countries where the service will begin.

India’s MX Player, on the other hand, swears by the Advertising-Video-On-Demand model. It began as an AVOD platform, but last year it launched its subscription service under MX Gold to tap into both markets for steady performance.

Deloitte Global’s TMT prediction for India said SVOD subscribers’ number is estimated to increase at a CAGR of 17% to reach 224 million by 2026, although AVOD is expected to continue to pull in more revenue than SVOD.

“As leading streaming providers expand globally while national media companies spin up their own domestic streaming services, the amplified competition is creating abundant consumer choice—and churn is accelerating as a result. Deloitte Global predicts that in 2022, at least 150 million paid subscriptions to streaming video-on-demand services (SVOD) will be cancelled worldwide, with churn rates of up to 30% per market,” the Deloitte report mentioned.

Subscription-based vs advertising model, or both?

According to Rashid Ahmed, Head of Digital of Infectious Advertising, AVOD might take the center stage. “For the most part, SVOD caters to the masses and covers content that has wide (and often proven) appeal. AVOD platforms are catching up with both mass appeal content as well as niche content which gain a dedicated following.

Most streaming video ad inventories are served programmatically, which allows advertisers to reach their intended audiences with a fair degree of accuracy when they’re consuming the types of content that match the advertised brand. With the variety and quality of content on AVOD platforms mushrooming, and viewers adding to their content buckets, AVOD may now be poised to take centre-stage.”

On the other hand, Shradha Agarwal, Co-Founder & CEO of Grapes believes a hybrid model could be best suited for the OTT platforms in the Indian market. She says, “With the industry constantly growing, the industry players are coming up with new models and strategies to keep up the momentum. In line with this, the industry is gradually transitioning from SVOD to AVOD. However, while adopting the new model, the industry players need to be sensitive to the market needs. Looking at the market scenario, SVODs are shifting to AVOD for growth opportunities where they can use the revenue generated by AVOD to mitigate content costs and expand their consumer base simultaneously.”

“The Indian market is very price sensitive and highly fragmented. Hence, to cater to the diverse needs of a wide range of consumers, there must be a hybrid model to suit the various needs of the different consumer groups. It will be conducive for both kinds of audiences, those seeking content without any ad interruption and the price-conscious ones' who are willing to go for advertisement-filled video streaming.” she adds.

Karan Taurani of Elara Capital also believes in the same theory. “I think the better option for the OTT industry in India right now is the hybrid model. We see AVOD platforms moving into SVOD, like MX Player and VOOT. On the other hand, we have SVOD platforms moving into AVOD, like Hotstar and Netflix globally. So, the point is, both these business segments right now are growing at a very rapid pace. Every OTT platform needs to take advantage of the growth which is happening in both these segments, and they have to give importance to both these segments in terms of revenue monetization opportunity because the potential is very, very large.

"Both are very much needed for the success of a platform. Because in the longer term, India has a very wide variety of audiences. So there are different kinds of people, different languages, different genres, different paces, and distinct differences. So, I think this is the best model suited for a country like India.”

Future of OTT advertising in the Indian market

According to Viren Razdan, Managing Director of Brand-Nomics, the money-making competition is real in this competitive market. “With bottom lines fast becoming a horror show, the monetisation pressure will see the next chapter of the OTT Saga - as consumer segmentation will rise to the surface with both in terms of spending power and quality content. For advertisers, the spends will be sharper, and for OTT players the positioning and content will be clearer. No more will dollars be thrown into the sea but sharper focus and therefore perhaps more expensive but more bang for your buck.”

Rashid Ahmed believes advertising is key to the growth of the industry. “Advertising built on video-on-demand can leverage audience insights and deep segmenting at scale. This is big data crunched to provide targeting insights that match messaging to specific types of consumer behaviour, likes and even dislikes. Advertising on OTT may spur the development of fresher and better content (which may draw in and keep audiences hooked). This in turn could boost the availability of segmentable data for sharper targeting based on content consumption patterns, allowing better ad placement. It seems like a win-win situation where platforms, content producers, advertisers and viewers all benefit, resulting in sharp growth for AVOD.”

The OTT industry has over the years seen increasing demand from marketeers and according to Shradha Agarwal, “Marketers look at this category as a key channel for reaching out to the audience. There are multiple factors behind the growth of the sector, for example, it's more cost-effective than TV, apart from this it seamlessly helps in providing audience targeting, measurement metrics, internet-based targeting, and premium viewership are some of the reasons that drive marketers to invest in OTT.”