What to consider when building an ad-driven video-on-demand business?
The success of advertising models is all about volume. It requires viewing volume (number of video views) in order to:
- get accepted by ad networks
- get better CPM rates from ad networks
- get lower bandwidth prices from OVP & CDN
- increase margins and improve the business case
You have to grow your viewership volume (number of daily video views) to a size which produces an inventory amount (number of daily ad servings) that gets you into a league where OVP costs for media management system, transcoding, storage and bandwidth become a minuscule cost. At that point bandwidth costs drop dramatically with higher volume commits which automatically increases your margins. The good news is: Lightcast.com has a solution for you! Small starter packages are not designed to service large volume of ad-driven video businesses. That is why we have custom packages for volume driven AVOD business.
Another important factor is the average viewing time. It will be significantly below the average duration of videos, simply because not every viewer watches the entire length of every video they click on. In fact, the average viewing time is usually a fragment of the average duration of videos. This automatically means: lesser bandwidth usage per view, and a higher ads/bandwidth ratio (because more ads are delivered in the beginning of videos (pre-roll + early mid-roll). It is safe to calculate with 30-50% of the average video duration as the average viewing time. For example: if the average duration of your videos is 10 minutes, the average viewing time could be assumed to be 3-5 minutes. This will influence the number of ads served.
Within a 10 minute view, at least 2-4 video ads should be served.
Two critical ingredients for success with ad-revenue models
1. You need some startup capital (sorry, even the streaming business requires some capital to get started and grow successfully). You need funding in place to sustain you long enough to be able to build up viewership with free content until you reach the break even point on streaming expenses. Depending on your type of content, target viewership, distribution system and marketing efforts - this may or may not happen out of the gate from day one. Some capital is needed to sustain your publishing properties for a while. This is true for both advertising and subscription models. Also budget for marketing campaigns. Make sure to consult a business consultant and marketing specialist with proven track record who can help drive fresh viewers to your publishing properties (such as your TV Apps, mobile apps, and web apps where you publish your content). Make sure you have funding for at least 18-24 months. The longer the better.
2. Stay frugal on other expenses. The core of your streaming business is your streaming service. That is the main artery that drives your business. It could also be considered the foundation to your business, because it is the very core you build everything else upon. Make sure to invest the majority of your early-stage capital into content and the content distribution. Make sure your funding takes you as far as possible by selecting an OVP & CDN partner which allows you to get onto as many TV screens, mobile screens and desktops, across as many app platforms as possible in the most time-efficient way. (because also time is money!). Don’t let other expensive hardware or service vendors talk you into spending an un-proportional amount of your capital on hardware, software or services they say you need. If you have the right OVP you don’t need expensive servers, encoders, office infrastructure, engineers or other expensive personnel and you can save on labor in many areas, such as web development, app development, engineering, sys admin (server administrators), and content managers.
Want to know more on how to save money and turn a streaming startup into a successful and sustainable business for years and decades to come? We would love to hear about your goals and projects and explore the best strategies together. Request a free consultation at http://schedule.lightcast.com