OTT Platform Business Model: How Does an OTT Platform Earn Profit?

OTT (Over-the-Top) platforms have revolutionized the way people consume content in India and around the world. OTT platforms deliver entertainment content like movies, TV shows, web series, and documentaries directly to viewers via the internet, bypassing traditional cable or satellite TV services. Some of the most popular OTT platforms in India include Netflix, Amazon Prime Video, Disney+ Hotstar, Zee5, and SonyLIV. With the rise of affordable smartphones, cheaper internet data, and changing viewer habits, OTT platforms have become an essential part of the Indian entertainment ecosystem.

But how do these OTT platforms earn profit in such a competitive and rapidly growing market? Let’s explore the business model of OTT platforms and understand the various revenue streams that contribute to their profitability.

OTT Platform Business Model: Digital Streaming and Content Delivery

OTT platforms operate on a digital streaming model, delivering video content directly to users over the internet. Unlike traditional cable TV, OTT services allow users to watch content on-demand from any device with internet access, such as smartphones, smart TVs, tablets, and laptops. These platforms provide a wide range of content, from local language films and TV series to international shows and original content produced exclusively for OTT.

Here are the key components of an OTT platform’s business model:

1. Content Licensing and Original Production: OTT platforms acquire content through two main sources:

• Content Licensing: OTT platforms license existing movies, TV shows, and web series from production houses, studios, and other content creators. This content is made available for users to stream on the platform. The cost of licensing depends on the popularity and exclusivity of the content.
• Original Content Production: OTT platforms have started investing heavily in creating original content. This includes producing exclusive web series, documentaries, and movies that are available only on their platform. Examples of popular original content on Indian OTT platforms include Sacred Games (Netflix), Mirzapur (Amazon Prime Video), and Special Ops (Disney+ Hotstar).

By offering both licensed content and original productions, OTT platforms can attract a broad audience and differentiate themselves from competitors.

2. Subscription-Based Model (SVOD): One of the primary ways OTT platforms earn profit is through the Subscription Video on Demand (SVOD) model. In this model, users pay a monthly or yearly subscription fee to access the platform’s content. Some OTT platforms like Netflix, Amazon Prime Video, and Disney+ Hotstar charge users a fixed amount for unlimited access to their library of content.

In India, platforms offer different subscription plans to cater to different audiences. For example, Netflix offers various pricing tiers based on the number of screens and video quality, while Disney+ Hotstar provides a combination of free content and premium paid content.

The SVOD model ensures a steady stream of recurring revenue for OTT platforms, as users continue to renew their subscriptions to access new content.

3. Advertising-Based Model (AVOD): Another popular revenue model for OTT platforms is the Advertising Video on Demand (AVOD) model. In this model, users can watch content for free, but with advertisements inserted before, during, or after the video. Platforms like YouTube, MX Player, and the free version of Disney+ Hotstar use the AVOD model, where advertisers pay for ad placements, and the platform earns revenue based on ad impressions and views.

AVOD is particularly effective in India, where many users are price-sensitive and prefer to access content for free. By offering free content with ads, OTT platforms can reach a wider audience and generate ad revenue while keeping users engaged.

4. Freemium Model: Some OTT platforms in India, like Zee5 and SonyLIV, use a freemium model, which is a combination of both subscription-based and ad-supported content. In this model, users can access a portion of the content library for free, but premium content is available only to paid subscribers.

This approach allows platforms to attract a large user base with free content while encouraging users to upgrade to a paid subscription for an ad-free experience and access to exclusive shows and movies.

5. Pay-Per-View (TVOD): Another revenue stream for OTT platforms is the Transaction Video on Demand (TVOD) or Pay-Per-View model. In this model, users pay a one-time fee to watch a specific piece of content, such as a newly released movie or a live event like a sports match or concert. This model is popular for premium content that is in high demand, such as blockbuster films or major sporting events.

Some OTT platforms, such as BookMyShow Stream and Apple iTunes, offer pay-per-view options for users who want to rent or buy specific movies. TVOD allows platforms to generate revenue without requiring users to commit to a long-term subscription.

6. Partnerships and Bundling: OTT platforms often partner with telecom operators and internet service providers (ISPs) to offer bundled services. For example, many telecom companies in India, like Jio, Airtel, and Vodafone, bundle OTT platform subscriptions with their mobile data or broadband plans. This bundling allows OTT platforms to reach a larger audience while offering added value to the telecom company’s customers.

These partnerships benefit both parties, as OTT platforms gain access to millions of potential users, while telecom operators enhance their service offerings to attract and retain customers.

7. Original Content and Licensing to Other Platforms: OTT platforms that produce original content often have the option to license their content to other platforms or television networks. For example, some OTT-exclusive web series or movies may later be broadcast on traditional TV channels or licensed to other streaming platforms, generating additional revenue for the original OTT platform.

Licensing original content to other platforms or international markets allows OTT platforms to earn profit beyond their direct subscribers.

How Does an OTT Platform Earn Profit?

OTT platforms generate revenue through multiple channels, combining subscription fees, advertising, and partnerships. Let’s take a closer look at how OTT platforms earn profit:

1. Subscription Revenue (SVOD): The primary source of profit for many OTT platforms is subscription revenue. When users subscribe to platforms like Netflix, Amazon Prime Video, or Disney+ Hotstar, they pay a recurring fee for access to the platform’s content library. Subscription plans vary based on the number of screens, video quality (HD, 4K), and content access (premium vs. basic).

This recurring revenue provides OTT platforms with a consistent income stream, allowing them to invest in more content production and platform development.

2. Advertising Revenue (AVOD): OTT platforms like YouTube and MX Player rely on advertising revenue to generate profit. Advertisers pay for ad placements on the platform, and OTT platforms earn revenue based on the number of ad views, clicks, and impressions. The more popular a piece of content, the higher the revenue generated from advertising.

In India, where many users prefer free content, the AVOD model is highly effective, enabling platforms to reach a broad audience while earning from advertisers.

3. Pay-Per-View (TVOD) and Premium Content: Some OTT platforms, particularly those offering exclusive or high-demand content, earn profit through pay-per-view transactions. Users pay a one-time fee to access specific content, such as newly released movies or live events. This model is used by platforms like BookMyShow Stream, where users rent or buy movies for a limited time.

TVOD helps platforms monetize high-value content without requiring a subscription, providing additional revenue streams for special releases.

4. Partnerships and Bundling Deals: OTT platforms collaborate with telecom providers and ISPs to offer bundled services. By partnering with telecom companies like Airtel, Jio, and Vodafone, OTT platforms can offer their subscriptions as part of a larger package that includes mobile data or broadband services. In return, the platform earns a commission or fixed fee from the telecom provider for each subscription included in the bundle.

These partnerships increase the platform’s subscriber base and help it reach new users who might not subscribe independently.

5. Licensing and Distribution of Original Content: OTT platforms that invest in original content production can earn profit by licensing their content to other platforms, TV networks, or international markets. For example, a web series produced by an Indian OTT platform could be licensed to an international streaming service, generating additional revenue for the platform.

Licensing helps OTT platforms extend the profitability of their original content beyond the domestic market.

Challenges and Opportunities for OTT Platforms in India

While OTT platforms have experienced significant growth in India, they also face challenges and opportunities:

1. Competition from Multiple Platforms: The Indian OTT market is highly competitive, with platforms like Netflix, Amazon Prime, Disney+ Hotstar, Zee5, and SonyLIV all vying for audience attention. To stay competitive, platforms need to continually invest in content, improve user experience, and offer unique features to attract and retain subscribers.

2. Growing Demand for Local Content: Indian audiences have shown a growing preference for regional and local content, with demand for movies and shows in languages like Hindi, Tamil, Telugu, Bengali, and Marathi. OTT platforms have an opportunity to tap into this demand by producing and acquiring more regional content.

3. Expanding into Tier 2 and Tier 3 Cities: As internet penetration continues to rise in Tier 2 and Tier 3 cities, OTT platforms can expand their user base by offering affordable subscription plans, localized content, and better mobile streaming experiences.

Conclusion

OTT platforms in India operate on a subscription-based, ad-supported, and pay-per-view model, earning profit through subscription fees, advertising, partnerships, and content licensing. As the demand for online streaming continues to grow, OTT platforms have significant opportunities to expand their reach and profitability by offering diverse content, innovative pricing models, and partnerships with telecom companies. With increasing competition and the rise of regional content, OTT platforms are well-positioned to play a major role in India’s evolving entertainment landscape.