Digital Media Revenue Models Explained: VOD, EST, FVOD, SVOD
Youtube.com, a worldwide platform where anyone can post videos on the internet, has recently announced that they will launch an advertisement-free subscription service in late October 2015. Initially, it will only be available in the United States for $9.99/month.  YouTube will offer original content, including feature length films starring famous vloggers (video bloggers) such as PewDiePie.  This brand new service called YouTube Red will offer a free one month trial period starting on the 28th of October, and international launch dates and pricings will be announced soon.  This exclusive subscription-only YouTube content will be available for download so that users may watch the content offline.  In the wake of this giant change in YouTube’s revenue model, one must wonder how creators of TV and films are making money in this era of abundant internet access, the near (or complete) extinction of video rental stores, and dwindling numbers of cinema goers and cable TV buyers.
The Many Different Revenue Models of TV On the Internet
The golden age of the cable subscription is gone. In addition, more and more people wait until a film is uploaded to Netflix rather than going to the cinema to watch the film days after its release. In this time of the Internet’s importance and power in society, creators of TV and film have had to adapt greatly in order to keep making money.
Electronic Sell Through (EST)
This model’s closest analog in the “old world” of entertainment is the purchase of a VHS. The user pays one price upfront in order to receive a “perpetual” license of content. The reason why the word “perpetual” is in quotation marks is because unlike a VHS which will not disappear from your possession if the film maker or VHS seller goes out of business, an EST file will disappear if the distributor company disappears. The digital file of the TV show or film is downloaded onto the user’s computer and can be played at the user’s leisure. This is a great moneymaker for the TV and film creators because they can charge pretty much the same price of a DVD for a data file that costs almost nothing to create and deliver.
Transactional Video On Demand (VOD or TVOD)
This is very similar to the old video rental stores. Users pay an upfront, one-time fee for one-time/limited viewing. Unlike EST, the digital file of the TV or film is NOT downloaded onto the user’s computer, but is rather streamed from the distributor’s website. Once you watch the film once (or however many times it allows you to watch it within a predetermined span of time), you get locked out of the file. The use of the file is much more limited than EST, so the price is accordingly on the lower end.
Free Video On Demand/Advertiser Supported Video On Demand (FVOD or AVOD)
This revenue model is what the original YouTube revenue model looked like. It results in the user paying nothing to get access to everything. The platform earns money from forcing users to watch advertisements before their online streaming content plays. This revenue model is highly similar to how cable TV stations sell commercial spots to advertisers. Cable TV commercial spot prices differ based on the popularity of the TV show to which it is attached. For example, commercial spots during a popular sitcom are going to be more expensive than commercial spots during a less popular drama. In a similar manner, FVOD/AVOD advertisement spot prices fluctuate based on how easily the main content targets specified demographics. For example, a monster truck rally show will probably easily target truck drivers, so that particular advertisement spot can be sold for a lot of money to a truck selling company.
Subscription Video On Demand (SVOD)
This model is very close to the new “YouTube Red” that was just announced. This is a revenue model where users pay a periodic (usually monthly) fee to have unlimited amounts of online streaming content access. The platform only contains original content, and you can’t get access to anything unless you pay the subscription fee.
Freemium (FVOD + SVOD)
This is what YouTube’s new service is. Freemium is a system where users have access to much advertisement-attached content at no charge, but you get access to advertisement-free content by paying a monthly subscription fee. The whole idea behind this system is that users get a taste of the content for free, they get annoyed at all of the advertisements getting in the way, and they end up paying the monthly subscription fee to access existing and exclusive content all on demand without the hassle of watching unwanted advertisements.
YouTube Has Entered An Already Crowded Stage
YouTube has caused a commotion in the playing field of modern day internet media by adding a new revenue model. In today’s internet media landscape with its large competitors like Apple, Netflix, and Hulu that already offer exclusive content based on different revenue models, YouTube has emerged as another powerful player. We’ll see how this all plays out as powers shift and prices (hopefully) go down for the users through natural economic competition.
Sources: http://www.bbc.com/news/technology-34596219  http://www.bbc.com/news/technology-34596219  http://www.bbc.com/news/technology-34596219  http://www.bbc.com/news/technology-34596219