If you are considering launching an ad-supported OTT platform, you need to consider many factors to be successful. Considerations include content costs, marketing costs to gain an audience, and operational costs so that at the end of the day you are profitable.

Content Costs!

Whether the content is licensed, you are doing a revenue share with a partner or you are producing the content yourself, there are significant costs associated with creating an AVOD OTT experience.

Content licensing can be based on a per play model, meaning that every time a consumer clicks on a video, the cash register rings; or content can be licensed on a monthly or yearly basis.

OTT and AVOD
There are significant costs associated with creating an AVOD OTT experience

Alternatively, you might find a content partner who has a catalog of content and you agree to split the revenue from advertising. No deal is the same here and gross ad dollars vary per geographic market as well as the content you are delivering as well as the audience.

Content is King.

Content drives audience. If you want to drive revenue, you need enough content for visitors to keep coming back.

Content is broken down into live linear channels that are typically licensed from a content provider (need SCTE markers to make ad insertion or ad detection and SCTE insertion) or you can create a linear channel via a playout of VOD assets as a linear stream. 

Video-on-demand content (VOD) consists of a content library that is broken down into categories and subcategories. It is all about discovery and users finding the content they like. 

This drives views. I am sure you have all subscribed to a service and cannot find more content to watch so you cancel the subscription.

Your Audience: The road to profitability begins with identifying your audience.

Then you need to drive users to watch your content and have them return. AVOD based OTT sites require tonnage (lots of views to monetize with ads). You will undoubtedly experience churn. (users come but do not return)

If you spend $1 to get a user to come to your site and they stay for 5 minutes and do not return, this is a form of churn.

Costs to launch and operate an OTT platform

As you enter the AVOD OTT market, you will find out early on that until you reach scale, the primary costs for content creation or licensing plus CDN fees and add serving fees will keep you in the red. This does not include a platform to manage all of the content which we will not address here. 

  • As an example, if you have 10,000 users who watch 60 minutes per day for a month, that is equivalent to 600,000 minutes a day. If you serve 2 ads per 10 minutes that is 120,000 ads a day or 3.6 million potential ad impressions to sell in a month.
  • Realistically not all ads will be monetized, so assume a 70% sell-through rate.
  • If you sell 70% of those ads at $12 which is the average CPM (cost per 1000 ads) these days in the US market, you are looking at gross revenues of $15,120.
  • If your users watch at an average connection speed of 3mb, you are looking at about 386 TB of video delivered over a CDN. CDN prices vary greatly but let’s say $20 per TB is your cost.
  • The total CDN cost would be $7,725 (half of your gross revenue).
  • Then you add ad serving fees of $2.00 CPM, for a total of $5040.
  • Total Cost: $12,765.

Oh and let us not forget about storage costs for VOD. These costs vary greatly (Amazon S3, Google Drive or Net Storage) but you can guestimate at $.25/GB. An hour and a half movie encoded at full HD is about 3GB which costs $.75 a month to store. 

So it is important to estimate all of your costs before you consider launching an OTT service. Content is expensive and you need enough of it to keep consumers coming back. Then you need to spend dollars to drive users to watch the content. Finally, you have all of these operation hard costs to operate the service.


Marc Mulgrum

Marc has spent the best of 21 years selling streaming video solutions. At Setplex, Marc runs OTT/IPTV global sales solutions teams across Asia, Europe, India, LATAM, and North America including sales, sales engineering, marketing, and customer success. Since 2006, Setplex has redefined the way video is managed and consumed. We focus on delivering the best UI/UX across all our platforms and providing the best quality. Setplex is solving the complex video value chain with powerful technology for managing, storing, distributing, and monetizing film, television, and sports.

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