Can online advertising be profitable for small to midsized OTT video players?
The rapid rise of internet users in the past decade has paved the way for online advertising to flourish. Its predicted that online ad spending will eclipse 200 B USD globally sometime in 2017, marking the first time it surpasses TV ad spending. A large proportion of OTT video players all over the world are looking to capitalize on this trend by using online advertising models to generate revenue from their content. By providing compelling content in a free ad-supported model, some of these players have successfully attracted impressive user numbers in short periods of time. Hotstar in India, for example, managed to acquire 140 M users in less than two years from launch.
However, in recent years a number of established OTT players have started moving away from online advertising as the model has not proven profitable. Earlier this year, the management of both Spuul (India) and iQIYI (China) stated that online advertising has not generated profits for them, and thus both are shifting focus towards a subscription service model. This despite the latter claiming 481 M monthly active free users, a figure which many might assume is profit generating.
However, the subscription service model has its own challenges, the foremost being customer acquisition given that many consumers in Asia are not accustomed to paying for content, have limited funds and limited ways to pay for online content. Spuul managed to increase its total user base from only 2 M users at end 2015 to 24 M users by Q2 2017. In the same period, its number of paid subscriptions only increased from 0.5 to 0.7 M, highlighting the challenge of getting paid subscribers. Even in Singapore, a highly developed market with high incomes, respondents in a consumer behaviour survey PCA conducted preferred to watch free ad-supported content rather than to pay a monthly subscription fee. These challenges suggest that the subscription model might not be a panacea for these OTT players after all.
But have these players exhausted all the options available in an attempt to make the online advertising model profitable?
We think not.
OTT players should tap into emerging ad technologies and also explore innovative business models to increase yields from advertising.
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