OTT operational costs are typically broken down into middleware fees, app fees, storage costs, DRM fees and, most importantly, CDN fees.
CDN fees are going to be the biggest line item for OTT operators.
Like most services, the more you use, the lower the cost per unit. CDN providers typically ask for a year’s commitment and the more you commit, the lower the fees.
Now not all CDN providers are built alike. Content delivery network technology is all about getting the content to the “Edge”.
A CDN provider can be regional or might be global and offer 100’s of thousands of points of presence around the globe.
Customers may pay different rates depending on where the content is being delivered. For instance, South Africa has some of the highest bandwidth costs in the world versus the US which is highly populated with points of presence.
OTT operators need to look at the market they want to serve to determine the best performer based on region and the quality of service they want to obtain as well as associated fees.
There are typically two variables to determine video delivery costs – time watched per subscriber or visitor (for ad-supported content) each month and the bit rate that each user watches which is determined by their connection speed and the bit rate you encode the video at.
The cost to deliver video is either billed per terabyte (TB) or per gigabyte (GB). To clear up any confusion, some companies charge per TB while others charge per GB. There are 1000 GB in 1 TB. and 1000 TB in a Petabyte.
1000 GB = 1 TB, 1000 TB = 1 PB (petabyte)
So GB charges are quoted at cents/GB:
$0.01/GB which is equivalent to $10/TB. TB charged in dollars per TB.
So, if 1000 viewers watch 2 hours per day on average in a 30 day month at 3 Mbps connection speed the total bandwidth consumed is 77 TB or 77,252 GB.
If you were to stream the same content at 4K, the total TB would be 540 TB or 540,766 GB.
An average starter price for video delivery is $0.02 /GB or $20/TB. So 77 TB would cost $1540. To break it down on a per-subscriber cost basis for the same bandwidth, it costs $0.73 per subscriber.
Understanding CDN costs are key when you price out your subscription fees or calculate the costs for ad-supported (AVOD) content. Beware of OTT platforms bearing gifts with really low costs for middleware and apps, where the cost per GB is $0.06 ($60/TB) or higher.
So as you become more successful, your CDN fees will eat up all of your profits. Not good.
As mentioned, CDN fees are going to be a big line item and your profitability can depend on what you pay at the pump.
In order to manage expenses and your revenue, it is important to contract with an OTT provider or directly with a CDN provider who can deliver your content to your audience’s geographic region and a committed rate card that will allow you to minimize costs and scale. In general, the more you commit to in terms of TB per month, the lower the cost per TB.
Setplex offers tiered pricing on video delivery with a major CDN provider, or you can bring your own CDN. The main thing is to find a provider where you can pay as you grow and still remain profitable.