REVENUE MODELS FOR CONVERGEDVIDEO SERVICES

A broad range of revenue models for converged services is employed by service providers. The following section offers an overview of main approaches, including advertisements, subscriptions, pay-per-view or pay-to-download, freemium, retail, shopping program, and revenue sharing (Bouwman et al., 2008; Kotliar, 2011; Huang, 2012; Waterman et al., 2013).

23.5.1 Advertisements

The world’s leading OTT players YouTube and Dailymotion mainly rely upon an advertisement-funded model. Likewise OTT players such as Viacom Digital and Crackle rely on advertising revenue for their primary business models (Waterman et al., 2013). Many online video platforms in China such as Youkou Toudou (historically the two largest providers, integrated by a merger in 2012) also rely on the advertisement model. Advertisements on OTT platforms can be shown in different ways. Some ads appear on the main page of the website. Some are shown before a program is aired. Some ads can also be skipped, improving user satisfaction with OTT. According to US firm IMS Research’s forecast, the rate of growth in OTT advertising revenues will increase over the next five years. With the increasing popularity and consumption of OTT content, OTT advertising revenues are forecast to rise to US$13.4 billion by 2017 (Beach, 2012a).

23.5.2 Subscriptions

Cable TV, DBS, and IPTV all employ subscriptions as their main revenue models. Some mobile TV and OTT services also adopt the subscription model. Monthly subscriptions can guarantee a certain amount of revenue for the service providers as long as users see sufficient value in the available content to be willing to pay the subscription price. The subscription model works for Netflix, which has a large high-quality library, but it may not work for other OTT services such as YouTube, which offers a broader quality spectrum. Mobile TV such as NOTTV in Japan also adopted the subscription model.

23.5.3 Pay per View and Pay to Download

Many online video platforms use the pay-per-view or pay-to-download models that are also employed by VOD service on cable TV and IPTV Both Amazon and iTunes allow users to pay according to what they choose to download. The advantage of this revenue model is that users do not have the expense of purchasing a monthly subscription. It also allows the providers to price differentiate by introducing premium content initially in one of these models. From a consumer perspective, a disadvantage is that they could end up paying more if they pay separately and without discount.

23.5.4 Freemium

Freemium is a term first coined by venture capitalist Fred Wilson in a blog post in 2006. As described by Anderson (2009), freemium refers to a business model that works by offering core services or products for free, while charging a premium for advanced or special features. It is a hybrid model of ‘free to use’ and ‘pay for premium content’ and is described as ‘get the basics for free, pay for more’ (Osterwalder and Pigneur, 2010). The free service constitutes an incentive to promote the premium services that gener­ate revenue (Kotliar, 2011). For example, Flickr offers a free photo storing service but charges users for additional storage. OTT providers such as Hulu use free content to attract subscribers to premium services on Hulu Plus.

23.5.5 Retail and Revenue Sharing

Some manufacturers try to sell set-top boxes or smart TVs by providing free content to watch or download on their devices. Some may pay the content providers a one-time fee whereas others may share revenues with content providers if users pay for viewing on these devices. Suppliers could also require that users pay a low monthly fee in order to receive updated programs.

23.5.6 Shopping Programs or Channels

Cable TV has had some experience in running shopping channels. Some IPTV provid­ers also try to run shopping channels. Japan’s NOTTV tried to offer shopping programs when it started its service, but the approach did not operate very well because of low subscriptions. Other IPTV or OTT service providers try to provide shopping programs on demand. The users can choose to watch the ads of different categories from the on-demand service at their convenience. Customer service and quality of product are both important for this revenue model.

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