In April, Vimond client iflix announced the 3.0 version of their platform. One of the major new features was the introduction of a free, ad-driven tier. According to iflix Group Co-founder and CEO, Mark Britt, it’s needed in emerging markets:
“When we began iflix, we naively believed that the Western entertainment model could easily succeed in emerging markets, and that price would be the primary customer pain point. Looking back now, we realize how superficial that view was. Fast forward nearly three years. Having now served 30,000 years of content to more than 12 million customers across 30 markets, we have a much deeper understanding of the localization requirements, and infrastructure, payments and authentication issues within our territories.”
Here in Scandinavia, where Vimond is based, SVOD has been the most common model since the beginning of this millennium. When pan-Nordic streaming giant Viaplay wanted to take a bite of the ad market they, instead, launched a separate service - Viafree. This opened up their content for a new group of viewers and is reportedly a favorite product among a younger demographic.
In Norway, Discovery has opened up some part of their SVOD-service DPlay for free but with commercials. Now, they have record numbers in their regional version of “Ex on the Beach”.
Just before this summer, YouTube took a more global step away from their ads only model with the launch of YouTube Premium in 12 new countries. A few weeks ago, this option became available to another four European markets.
Looking deeper into a company heavily rooted in the streaming business, Roku is a compelling case. They are historically known for producing streaming players and is the most popular in North America. Now, they also provide a platform technology to be integrated into connected TVs. Roku describes this as their «two primary business segments, which we call Players and Platform». In their announcement of the Q2 2018 results last month, Roku stated that Platform has more or less doubled year-over-year, and have passed the revenue of selling own devices. From the shareholders' letter: «...with advertising revenue representing the largest driver».
Roku reveals that the 5th most demanded channel among their 22 million accounts is their own free and ad-driven channel. A selection of back catalog movies and series forms this channel. Roku also earns from serving other channels through an integrated ad service, and to satisfy the shareholders Roku aims for the ads: «As TV advertising continues to move to streaming, we believe we can deliver rapid platform growth over a sustained period.»
The pros of subscriptions are of course loyalty, including a steady and more predictable revenue stream. The main problem is that the paywall also prevents groups from coming in.
The major pro with free access, with the ads on top, is limited barriers for the user. This opens a vast revenue opportunity when you make a hit. The backside is that you often have to rely on those peaks to succeed and, with that, you have no guarantee.
So why not think hybrid?
Roku letters to shareholders: https://ir.roku.com/static-files/d7d2b538-5cd7-4f13-a9e8-3c7f2b47d1ea
Youtube announcement: https://youtube.googleblog.com/2018/06/youtube-music-and-youtube-premium.html