A recent report by MarketsandMarkets predicts dramatic growth in the VOD market over the next few years. According to these projections, the VOD market – which roughly comprises OTT, PayTV, and IPTV – is set to grow up to US $61.4 billion by 2019. Surprisingly, this is taking place against the backdrop of declining viewing of the traditional TV. It looks like VOD viewers consume a disproportionate amount of content, including content delivered via traditional live TV, which makes them a highly attractive audience for advertisers. For VOD service providers, who want to win advertising dollars or subscriptions, the trick is to keep this audience within their service domain in an increasingly fragmented and varied media landscape. The key to doing so is to attract users with content that aligns with their tastes. To gain even further customer’s loyalty content must be targeted down to the level of the individual.
Traditional TV Waning as Viewers Move Towards VOD
As many know by now, viewers are watching more VOD at the expense of traditional linear TV. In its Q4 2014 Total Audience Report, Nielsen outlines the key statistics. Traditional television viewing, including live TV and time-shifted viewing, dropped 4.6% between 2013 and 2014. This decline is more pronounced among younger cohorts:
- 18 to 24 year-olds viewed 16% less traditional TV
- 12 to 17 year-olds viewed 10% less traditional TV
While traditional TV is declining, VOD is growing. Indeed, more than 40% of US homes now have SVOD. Of the 40% of US households that have SVOD…
- 27.8% use one service
- 9.9% use two services
- 2.6% use three services
- 36% have access to Netflix
- 13% have access to Amazon Prime
- 6.5% have access to Hulu Plus
VOD Users Highly Engaged and Attractive for Advertisers
One interesting finding outlined in the report is that homes with VOD watch 20% more live TV than do homes without VOD, even though, total live TV consumption fell 5.5% year-to-year. Homes without VOD watch 54 minutes of TV per day while VOD homes watch 65 minutes of VOD per day. Such a highly engaged audience is attractive to advertisers. However, while this audience consumes the most content, they access it via a multitude of means.
A Multifaceted Market with Many Revenue Models
As the MarketsandMarkets report illustrates, the VOD space can be segmented in a number of ways. First, there are different solutions: such as IPTV, OTT, and PayTV. Second, VOD can be organized according to the different verticals it services: academia and government, banking, financial services and insurance (BFSI), manufacturing, hospitality, media and entertainment, telecom and IT, transportation and logistics, consumer goods and retail, healthcare, media and entertainment and others. Third, VOD can be categorized in terms of the delivery and revenue models: subscription-based (SVOD), transaction-based (TVOD), ad-based (AVOD) and near VOD (NVOD). Many VOD companies adopt hybrid revenue models in order to maximize business opportunities. For instance, they may incorporate SVOD with AVOD. Under such a model, premium content can be restricted to subscribers as a means of encouraging people to sign up for subscriptions while revenue can be generated from the rest of the content via ads. However, one thing is certain. No matter what the revenue model is, all VOD models can benefit and attract a large audience by providing content of their users’ choice. This point sounds obvious but isn’t always easy to execute.
From Push to Pull
Traditional linear TV viewing is considered as a push service. Broadcasters push out their content to viewers, and those viewers have relatively few options in terms of viewing choices. They can change the channel, but they are still limited to some sort of linear stream of content over which they have no direct personal control. In contrast, VOD empowers viewers to select personally what content they want to watch and when they want to watch it. Important for VOD service providers here is to pull viewers in with attractive content. Large companies dole out a significant amount of money to achieve this goal. lNetflix recently invested one billion dollars in content acquisition in an effort to do just this. Having a library of quality content is just half of the task. It is also critical that this content is personalized to each individual user’s preferences.
Aligning Your Content Library with Individual User Tastes
With a staggering amount of content at their fingertips, users of VOD platforms now have more viewing options than ever before. This creates a challenge for both service providers and their audiences. Users often have to wade through mountains of content to find what they like, and service providers need to identify what it is users like and offer it instantaneously to avoid customers dissatisfaction and churn. This is where new means of delivering content to users become useful. Recommendation engines, such as the Trouvus system, enable VOD service providers to offer content suggestions to their users that are tailored to their individual tastes. Thanks to these solutions, users can find content they like more easily and quickly resulting a unique personalized viewing experience. These users then have more reasons to stay on the site, consume more content, view more ads and sign up for subscriptions, which ultimately increases revenue for service providers. The results of recommendation engines speak for themselves. For instance, YouTube’s recommended videos have been documented to account for 60% of clicks on the homepage. Moreover, the click through rate (CTR) for these videos was 207% that of the Most Viewed videos. Clearly, YouTube’s recommendations system has done well to improve engagement. At Trouvus, our own internal testing with our clients has demonstrated similar results. The Trouvus system enabled our client to increase the number of views of recommended items by 68% and the number of clicks by 51%, for example.
As traditional linear TV declines, VOD is set to enjoy dramatic growth. The VOD market, however, is fractious and highly competitive. Still, its users are very much engaged, as measured by metrics such as viewing time, which makes them valuable to both advertisers and service providers. Yet this is a double-edged sword for service providers. While VOD users are highly engaged, their attention is being fought for by a myriad of companies and mediums. In order for service providers to remain competitive and win market share, it’s imperative that they offer content that aligns with user tastes. This objective can be accomplished through a number of means. The most straightforward method is to offer high-quality content as demonstrated by Netflix’s considerable investments in new productions. However, often this isn’t enough. Recommendation engines enable service providers to personalize their offering around each individual user’s specific preferences. By offering content suggestions that precisely align with their audiences preferences, recommendation engines increase engagement and reduce attrition which ultimately helps to increase revenue for VOD service providers. As more service providers are deploying recommendation engines, this technology is moving from being a nice to have advantage to an increasingly essential feature. Because of this, video platforms and technology solutions providers that support service providers, must adopt this technology and offer it to their clients in order to remain competitive.