Transactional Video on Demand, Premium Video on Demand, Subscription Video on Demand, and new AVOD/SVOD hybrid platforms are engaged in a street fight these days for online audiences.

This is the second article in our series exploring the different digital entertainment delivery platforms. We are exploring the entertainment on demand world we live in today, one platform at a time.

We started with a dive in on advertising supported video on demand (AVOD); in case you missed it, and want to catch up, you can find it here. This blog’s focus is on Subscription Video on Demand more commonly known as SVOD. Let’s start with a short history lesson.

The History of SVOD is the History of NETFLIX

SVOD as we know it today was invented when Netflix launched their monthly subscription website in the United States in September 1999. Netflix had started in the late ‘90s as a movie rental service undermining the giant Blockbuster Video with a movie delivery service. Customers of Netflix could order a bundle of movies over the internet to be delivered to their homes where they could be enjoyed on DVD. Famously, there were no late fees. You returned the bundle of titles when you had finished with them, and could then go ahead and order more.

The experience wasn’t perfect. It wasn’t immediate. Blockbuster customers on the other hand, would walk down to their local shop (it’s hard to believe now, but they were everywhere), select a title off the shelf, pay $4.99 for library titles to rent them for 2 nights. Or pay $6.99 to rent the latest release for one night. Should you return them late, you would be charged late fees. These fees could be considerable, and consumers hated them bitterly. In a last-ditch move to save themselves before the very end Blockbuster did away with them, but too late. The late fees were also controversial within the industry, as Blockbuster didn’t pay rights holders of those movies returned late a share of those late fees.

In a typical arrangement with a supplier, Blockbuster would pay a revenue share where the distributor would receive a proportion of rental fees their title earned in exchange for providing the rights to rent the movies to the public for Blockbuster.

Netflix correctly identified that customers would likely rent more movies at once if they knew they wouldn’t face late fees should they fail to consume them all within 24 or 48 hours. They also knew that Blockbuster stores often could not keep up with demand for new release titles from the public. While this unfulfilled demand was great for the movie industry, as customers would nearly always select an alternative movie vs returning home empty handed, it was an ongoing source of frustration for the consumer. Because Netflix didn’t rely on physical stores, they were better positioned to meet demands for the newest releases.

In 1999 Netflix blew the industry wide open when they began offering an all you can eat option to the consumer in exchange for a monthly subscription of $9.99. All you can eat options that existed at the time were limited to the Pay TV networks like HBO in the United States, or TMN (The Movie Network) in Canada. Cable and Satellite TV distributors had begun experimenting with video on demand offerings as a means of enriching the value of a cable or satellite TV subscription. These services were new and had tighter inventor restrictions than we are used to seeing today. The amount of movies available for an all you can eat experience was limited by the broadcast schedule of the pay networks, and by the amount of inventory made available to them by the cable and satellite companies.

Netflix on the other hand, had massive inventories of titles available. Subscribers would order the movies they wanted to see from the website which would send the movies to subscribers homes where they could be viewed on DVD, much like they had done with rental. There were some titles available to be streamed directly over the internet – but the overwhelming majority of their content was disc driven, and ready to go to consumers homes after just a few clicks.

After Blockbuster Video declined an offer to buy-out Netflix in the early 2000s, Netflix doubled down on their efforts to be a lean, mean , entertaining machine. They took advantage of the growing availability of high speed internet services in the U.S. and Canada, and began to focus on putting more and more of their catalogue online available to stream. As the rental component of their business declined, and the subscription side leapt forward, Netflix started to become the streaming giant we know today.

I’ve glazed over a ton of details here… In the mid to late 2000s I was selling film x to buyers domestically and internationally, and I can tell you the impact Netflix had on the marketplace was dramatic. Every single territory they went into they disrupted. Today, they lead the SVOD, and PayTV, markets globally with 205 Million Subscribers globally. Amazon is close behind, at more than 150 Million Subscribers, and Disney’s SVOD service Disney + takes third with more than 90 Million subscribers as of writing.

How the SVOD Market Works

There are a lot of SVOD platforms. Easily more than a few dozen of these platforms exist, and compete globally for subscribers. The platform may have been invented by Netflix, but the total market size is such that no one player will own the globe.

SVOD operators offer a mix of content to an audience in exchange for a fee, paid monthly, weekly, or annually. Hallmarks of an SVOD service are: exclusive content, subscription fees, no advertising, with content delivered to audiences over the internet. Platforms typically look to license content on an exclusive basis, to draw audiences in based on the shows they have available. Typically these shows are paid a license fee in exchange for the rights. Some of these fees have bonuses, or are structured with variable payout systems where content providers are rewarded fees based on the number of views their programs receive. SVOD platforms need deep libraries of content to keep their audiences interested, and exclusive access to premiere premium content to prove the ongoing value of the subscription.

SVOD platforms differentiate themselves from one another by pointing to their exclusive content, and the depth of their content catalogue. They court fans of known content franchises, and hype new shows they have bought away from their competitors to attract audiences. Some mega franchises of the past like FRIENDS, and THE OFFICE have such intense, built-in audiences that we have seen the big players spend serious money to secure the rights to these shows – perhaps better put, they pay big fees to take these built-in audiences away from their competitors.

Subscribers pay monthly fees to the platforms in exchange for the rights to view the available content on an unlimited basis without interruption by advertisement, at a time convenient to them, and in high quality formats with robust technology keeping the viewing sessions uninterrupted by bugs. Speaking of robust technology, SVOD platforms live and die by the user experience. If fans can’t find the shows they’re looking for, or can’t view it in high quality, or can’t finish watching an episode without the app crashing, they will leave the platform in search of an alternative.

Operators court potential subscribers with limited trial experiences – often just one week, though some operators will offer more generous monthly trials. It’s essential the app is easy to navigate, that the available content is easily browsable, that suggestions are relevant to the user’s demonstrated preferences, and that there’s enough to watch to keep them coming back after the trial.

SVOD platforms are a bit different from AVOD or TVOD platforms with respect to which devices they need to be compatible with. A strategy which puts their service on all or a large number of devices will give them lots of opportunities to win new subscribers, but because of the high standards expected by audiences with respect to the user experience, the quality of the video feed, and the uptime of the service; this can be a risky strategy for any but the biggest players.

Lessons learned – avoid these pitfalls if launching your own SVOD platform

Millennial audiences have been conditioned by Netflix to expect premium experiences in exchange for their subscription fees. They expect an advertisement free experience. They expect to be able to easily navigate the mix of content available at minimum by genre. They expect an always-on experience, with all the episodes of a series available to binge in their entirety.

The best of the SVOD services are available on mobile platforms (Apple, and Android) with natively built experiences. Standing out with a premium look and feel will really help manage subscriber retention issues, and take pressure off of customer care. Increasingly, operators are able to take advantage of digital SVOD marketplaces like Amazon Channels, or ROKU Marketplace which aggregate available SVOD services, and promote them on platform to their massive base of users. While these seem like ways to save money versus building your own 10 foot experiences; they can come with significant revenue sharing implications which will need managing.

Don’t over complicate your experience, or your model. Quibi learned this the hard way. Quibi developed an SVOD/AVOD hybrid solution which would offer users an ad-supported experience at a monthly fee of $4.99, and an ad-free experience for $7.99. They tried to push the boundaries by creating content that was only viewable in portrait mode on your mobile device, and all their episodes were shorts. Quibi failed quickly, and hard, despite all the buzz surrounding their launch, and despite the hundreds of Millions of dollars invested in premium content development. While Quibi execs officially laid the blame on COVID-19, that’s tough to swallow considering the substantial growth experience by the SVOD industry as a whole.

Planning on going OTT with your own SVOD platform? Having launched one myself, here are 3 tips:

Invest in premium content that will command an audience

The SVOD landscape is very competitive. Your service is going to be competing with the big boys on the block: Netflix, Amazon, HBO Time Warner, CBS-Paramount-Viacom, ABC-Disney; and the other little fish. Every producer with an idea is looking to these major services for investment in their scripts. You won’t be able to compete with the big boys head-on at launch, you’re going to need to be creative.

This can take the form of aggressively courting producers, spending to advertise co-production opportunities, being prepared to take risks. But it can go another way as well. Some of the most successful SVOD services start with hyper targeted content offerings courting a specific audience, spending to deliver premium formats like 4k, and developing a reputation for excellence in a genre.

Examples of this include:

Love Nature – a service dedicated to wildlife content.

Pureflix – a service dedicated to spiritual programming

Muslim Kids TV – a service dedicated to Muslim children with appropriate, educational content.

Fubo TV – a service dedicated to sports programming, which has since expanded considerably.

MetOnDemand – a service dedicated to broadcasting operas

By providing focussed content offerings to niche communities, these services develop a reputation of excellence within their target audience and don’t need to compete with the majors for content. Distributors with focussed content offerings will take new content to these buyers knowing the shows will get a larger audience more quickly and have a higher likelihood of renewal for subsequent seasons than they would be on mainstream outlets.

Invest in premium user experience

Subscription video on demand is a competitive business. There are a lot of options for today’s consumers, particularly amongst those cable cutters and cable nevers who are stringing together several subscription services to replace the cable experience. This customer is ruthless. If the service doesn’t meet their expectations for ease of use, and 24/7 uptime they will not stick around. Even if you have that ‘just gotta see it’ hit of the year show, once your subscribers have consumed it, they’ll drop you like a hot potato. You need to keep these subscribers on board for as many months as possible to maximize the value of each single subscriber you pay to acquire.

Respect your investments in content, and promotional advertising to win over new subscribers by investing in the best possible user experience you can afford, and continue investing in it. You need to be in this for the long-haul and will need to consistently spend to keep your app stable, and improving with the times. Even if you have to limit yourself to one platform at launch. Do it extremely well.

Avoid the Apple tax

Did you know that Apple earns ___ billion from the app store alone? Apple takes a 30% cut of your app’s revenues for the privilege of distributing your app in their app store to Apple devices globally. Your SVOD business margins are too tight to operate without 30% of your gross revenues. You can’t, and shouldn’t avoid distributing your SVOD app in the App Store, you need to be creative and clever and you can get around the apple tax. If you’re interested in learning more, reach out – we should talk!

Closing thoughts:

Netflix gave birth to SVOD, and the Millennial generation have wholeheartedly embraced it. Cable cutters and cable nevers are flocking to these solutions, are willing to subscribe to more than one service, and are willing to swap between providers month to month. This is a competitive landscape, with hundreds of options for consumers.

If you’re considering taking your entertainment product to the next level, like the NY Met have done with MetOnDemand to access that global marketplace, it can be transformative. There is lots of room for new SVOD services, but you need to be prepared for the competitive landscape ahead, and ready to spend aggressively on technology, content, and advertising.

Globally as access to high speed internet improves, more and more potential viewers are coming online. The market potential for subscription video on demand is global in scale. Many users will look to multiple platforms to enjoy their favourite shows (just like they used to do on TV!)

Transactional Video on Demand, Premium Video on Demand, Subscription Video on Demand, and new AVOD/SVOD hybrid platforms are engaged in a street fight these days for online audiences. Next issue we will dive deeper into these streaming wars as we continue our series.

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Not your cup of tea? Did I miss something? Friends in broadcasting, amigos in online video, online Madison avenue MadMen if you think I got it wrong, please get in touch, I’d love to hear from you!