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Explore the strategic considerations involved in choosing between SVOD (Subscription Video on Demand) and AVOD (Advertising Video on Demand) models. Evaluate factors such as content investment, customer acquisition, revenue generation, and relationship building to make an informed decision that aligns with your business objectives.
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SVOD and AVOD: Strategic Considerations (1 of 2) • Previous discussions have evaluated the launch of a programmed video service as a standalone profit driver, key considerations include: • Investment in content and programming required to compete with leading services • Number of customers likely to be acquired • Revenue per customer • Ongoing relationship with customers • If a service is intended to be a standalone profit driver, the SVOD vs. AVOD decision depends partly on appetite for investment and risk • SVOD can be a high risk, high reward proposition • Significant investment in content required to given heavy investment by many competitors • Harder to secure customers for paid service • But SVOD offers the potential for higher revenue per customer and an ongoing relationship • AVOD can be a lower risk model, but with lower revenue per customer • Success is possible at a lower level of investment, despite numerous competitors, investment in exclusive content for AVOD services has been more modest • Easier to secure customers for AVOD services • But revenue per customer is lower, and programming expertise is required to keep customers coming back
SVOD and AVOD: Strategic Considerations (2 of 2) • Sony’s existing revenue-generating services and connected device footprint give us the opportunity to evaluate the SVOD vs. AVOD decision differently • If a programmed video service is viewed as a customer acquisition tool for other revenue generating services and hardware sales, strategic considerations change • Strategic considerations include: • Creating a compelling and competitive content offering with a reasonable investment • Acquiring the greatest number of customers to the service • Providing those customers a reason to return on a regular basis • Monetizing by cross-selling these customers on paid services (Music Unlimited, Video Unlimited, PlayStation Plus) and hardware • AVOD’s characteristics better satisfy these strategic considerations: • Lower investment in content is required to be competitive • Free-to-consumer positioning makes it easier to acquire customers • A well-programmed service provides a reason for customers to return on a regular basis • Service can be deeply integrated into other paid offerings, encouraging cross-selling and co-promotion
Despite Netflix’s highly publicized subscriber numbers, standalone SVOD services have attracted fewer customers than AVOD services “Bundled SVOD” Standalone SVOD AVOD • Includes “streaming only” customers and customers that subscribe to both strreaming and physical rental per Q3 investor letter from 10/11. • Source: Piper Jaffray research, 2011. • Source: Hulu Management Blog as of 10/5/11.
And Competition for SVOD Services is Increasing… …but similar lessons are playing out again TV Everywhere
SVOD and AVOD: Content Investment • While the ability to attract customers to standalone SVOD services at $10 per month is still being tested, the required content investment in these services remains high: SVOD: “Billions” • By contrast, AVOD services initially drove significant viewership with little to no content cost. Investment is increasing, but still well below investment in SVOD AVOD: “100MM” • Source: company filings dated 2/18/11. • Source: company filings and press releases. Note: Specific valuation for Lovefilm not publicly disclosed.
