4 Monetization Challenges for Direct-to-Consumer Streaming

BlogNov 01, 2022

Direct-to-consumer (DTC) streaming services have grown dramatically over the past decade. Instead of subscribing to traditional pay TV services (e.g. cable and satellite), consumers are switching to virtual multichannel video programming distributors (vMVPDs) or simply relying on OTT streaming models like FAST, SVOD, AVOD, and TVOD.

Although the lion’s share of Direct to Consumer growth is from goliaths like Disney, Netflix, Amazon Prime, and Hulu, we are seeing more specialty and niche programming services sprout up every month. Entertainment companies with large catalogs of content are moving in, too. AMC is a perfect case study. They launched their own streaming services like Acorn TV which collectively grew 157% last year.

There are several distinct challenges for media and entertainment companies trying to maximize the value of their content in this new Direct to Consumer universe. OTT trends clearly indicate the media industry is moving in this direction. Whether you plan to launch your own DTC platform or form distribution agreements with other providers, this article will help give you the best tools and strategies to succeed with DTC streaming.

 

The Rise of DTC Streaming Services

To better understand these modern dynamics, we should review the rise of DTC services.

If we remove the “v” from vMVPD, we arrive at a multichannel video programming distributor (MVPD). These are the Pay TV cable and satellite companies that have traditionally offered programming packages containing a group of networks for a given price.

For networks that primarily served content via MVPDs, the audience was well-defined, and revenue was dictated by subscriber counts and long-term revenue share agreements.

As smartphones became globally ubiquitous and over-the-top (OTT) streaming delivery grew, audiences became reachable in a way other than via a cable or satellite dish. Video-on-demand services like Netflix and YouTube attracted millions of viewers. The game changed and a tectonic shift began.

Connected TV (CTV) devices from the likes of Roku, Apple, and Google, as well as smart TVs from companies like Samsung further transformed content distribution. With audiences changing how they consume content (hello binge watching) and where they wanted to consume it (anywhere and everywhere), networks began to realize that they too had to change — eventually building their own apps and syndicating content to OTT streaming platforms.

 

Direct to Consumer Streaming Presents New Challenges

As it turns out, success with DTC streaming is not so direct.

In this new world of smart devices and platform proliferation, DTC is far from a rosy, greenfield opportunity. Finding success with OTT monetization is a challenging game with moving targets.

1) Loyalty to series, not platforms

If you are an entertainment company with a robust content catalog, launching your own Direct to Consumer platform can appear to be a logical path to success. Over time, it provides a better profit margin and, crucially, a direct relationship with one’s viewers.

However, today’s viewers, particularly younger demographics, are often loyal to specific shows and series, not the company that created them. Their ideal scenario is a month-to-month subscription to a video streaming service with a wide variety of appealing content. They generally try to avoid a large number of paid streaming subscriptions. If you have a highly compelling series, you can draw them in, but long-term retention is tricky even if you focus on a great user experience. It’s common for people to subscribe to a DTC service just long enough to consume their favorite content which leads to high rates of subscriber churn.

Game of Thrones and HBO Subscription

This chart from Second Measure demonstrates HBO’s subscriber churn after Game of Thrones seasons.

2) Licensing to multiple OTT platforms means complex agreements

Content owners who license their content to other DTC platforms quickly develop a complicated mix of distribution agreements. To maximize revenue with each asset, it makes sense to experiment with multiple distribution platforms. However, this strategy ultimately means more agreements, more complex deal terms, and more distributors to manage. The deal terms and payment processes differ from traditional pay TV distribution agreements, and these DTC agreements can have shorter terms (windows) which means you might be dealing with renewals every month of the year. This complexity can be difficult for content and finance teams to manage and leaves room for costly errors.

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3) Getting data from OTT Platforms

Licensing to other DTC platforms gives content owners access to large potential audiences, but that doesn’t mean content owners are able to garner the data they need regarding content performance. How can you make the best programming and placement decisions if you can’t get granular data as frequently as you need it? Content owners have to deal with “data middlemen” since the streaming platforms own the OTT data.

4) Managing your performance and financial data

Whether you are running your own DTC service and are flooded with data or you are getting data from streaming platforms, you will eventually have a wealth of big data to analyze and track. Knowing who is watching what, when, and where, the resulting royalty payments, and an endless number of related data points will make or break a DTC strategy.

Properly managing and analyzing this data is paramount. Without a comprehensive data strategy and the right tools to provide insights, content licensors are essentially driving without a dashboard.

Maximizing content performance is no longer a quarterly planning exercise; it’s a continuous process that requires real-time understanding of audience behavior, detailed demand forecasting, and sophisticated pricing and revenue shares.

Data is an incredibly valuable asset to be leveraged in today’s DTC universe, but some organizations can get overwhelmed quickly because they do not have the appropriate tools to parse and process that data. For many companies, it can take hours or even days to aggregate and normalize OTT metadata every month or quarter. It’s gotten to the point that the scope of data management and analysis required to maneuver DTC already surpasses human ability. Technology such as artificial intelligence (AI) is on the rise among content owners who understand the level of insight required to win audience share in a noisy, crowded market.

 

The Solution: Use the Right Tools

So how can media companies successfully launch, maintain, grow, and profit from DTC distribution?

Organizations must come to terms with the reality that having disparate tools for each distribution model is not scalable. As long as data is spread across systems spanning business intelligence (BI), payment processing, content performance, audience analysis, agreement management, and so on, content owners cannot be confident that they are maximizing revenue from DTC distribution.

In order to properly analyze and identify trends, behavior, and prescriptive solutions, get your data into one system – and be confident that the system is capable of handling everything. Otherwise, you may find yourself lost again when you choose another OTT revenue model in two years.

With tools like Revedia Digital, you can harness the power of your data and run your DTC business with increased intelligence.

 

*This blog was updated and republished in November 2022.