What is Video on Demand (VOD) and How Does It Work?

Industry InsightsWhat is Video on Demand (VOD) and how does it work?
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    VOD is the king of digital media these days. Video on demand is going to be your best bet for getting it in front of an audience. Let’s take a look at what VOD means and the formats in which it is used, how it’s related to connected TV and why its era is on the rise.

    What is video on demand (VOD)?

    The definition of VOD is video on demand. It refers to video that can be streamed whenever the viewer chooses (or ‘demands’) to do so. This can be done either through direct streaming from an online source, or with the viewer downloading the video to their device to watch later. This is opposed to traditional broadcasting, where the viewer can only watch their video at a scheduled time and only on a device with a cable or satellite connection. 

    Video on demand started out with pay-per-view broadcasts of live events and movies over cable and satellite connections.  However, it has since moved to the digital realm with the proliferation of fast internet and mobile devices. We are now able to watch high-quality on-demand video wherever we have fast internet, both mobile and at home.

    How does video on demand work?

    VOD works by sending packets of data from servers hosting video content to your video player. VOD providers usually make money from their video on demand content with two models: advertising VOD (AVOD) and subscription VOD (SVOD). Let’s take a look at the advantages and disadvantages offered by each model, as well as some examples of the VOD services which use each one:

    AVOD allows viewers to watch their VOD content for free in exchange for showing them advertisements. When you watch on-demand videos on platforms like YouTube, DailyMotion, Pluto TV, Xumo, and Crackle, you are using AVOD. The amount of money you can earn from a given advertisement depends on a number of factors, including the duration of the ad, whether it is skippable, what kind of interactive features are in the ad, whether users click through the ad and go through a conversion action, and how attractive your content is to advertisers. AVOD is ideal for audiences which don’t want to pay money for access to your content. On the other hand, the money you earn from ad placements can be highly variable, and is highly dependent on the algorithms used by the streaming platform at any given time.

    SVOD is the model used by distributors like Netflix, Amazon Prime, Hulu, Disney+, and HBO Max. With this form of VOD, users sign up for paid subscriptions that allow them to access a large library of VOD content whenever and as many times as they want, and they don’t receive 3rd-party ads during their viewing experience. Some platforms are AVOD in their free version, and also offer an SVOD premium version without advertisements, like Youtube Premium. These are called hybrid VOD platforms. Television broadcast networks like NBC, CBS, and the BBC also offer something called Broadcast VOD, in which content that is first broadcast on linear TV is then uploaded online for on-demand streaming. Earnings from selling to a SVOD business can be much more predictable, but your content is much more at the mercy of the decisions of the streaming platform.

    How is VOD streaming  different from live streaming?

    Now that we understand the meaning of VOD, it’s worth explaining how it differs from its cousin, live streaming. Both VOD and live streaming are OTT (over-the-top) ways of delivering content, meaning that they are delivered through an internet connection, rather than by cable or satellite. Live streaming, as its name suggests, is used for broadcasting video over the internet in real time. As a result, a live stream can’t be consumed on-demand, as it only occurs at an appointed time. It is used for things like news shows, press conferences, product launches, and especially live sports. 

    Live streaming is somewhat more technologically complicated than what is used by video on demand services, since it requires data to be sent to the viewer’s video player in many more and smaller packets in order to minimize the delay between the transmission and the reception of the streaming data. Video players don’t have the ability to cache large amounts of content, so live streams use things like adaptive bitrate streaming to ensure smooth delivery and minimize buffering on the receiving end.

    Live streaming also poses a different monetization challenge. Viewers will generally not put up with their live stream being interrupted by advertisements, since nobody wants to be watching an ad when the game-winning goal is scored or an important piece of news breaks. Instead, live streams often require payment in order to secure access, play ads during limited designated advertising breaks, or get sponsorships for the broadcasts.

    What are VOD apps, and how do I develop one?

    VOD apps are platforms from which viewers can access content libraries to stream video on demand. In the domain of CTV, these apps are offered for download on platforms like AppleTV and Roku. Content producers develop apps for users to download so that they can be directly connected to their audiences, provide the best viewing experience, and collect data which they can use to optimally target ads.

    To develop a VOD app for CTV, identify the features you want for your on-demand video experience. Do you want an AVOD or SVOD strategy? What kind of user interface do I want? Do I have enough content to support my own on-demand channel, or would it be better to include my videos in an aggregator? Which platforms am I interested in? Once you know what your app needs to look and work like, one option is to create it through Direct Publishers on the platforms, or code it yourself. You could also decide to use a company like VlogBox to develop your app for you and publish it on platforms like Roku, AppleTV, and the Amazon Fire TV store. The company works on a revenue-share model as well as provide custom app development, depending on multiple factors, from number of subscribers and quality of content to specific customer’s requirements.

    What can I expect from the future of VOD?

    Valuates Reports predicts that the market for VOD will grow by over 150% between 2019 and 2025, achieving a compound annual growth rate of 16.02%. The proliferation of affordable high-powered mobile devices and fast internet means that more and more users are being brought into the fold of VOD audiences around the world. As a result, there is tremendous room for new growth, and enough market space for players both new and old in the VOD domain. 

    At the same time, traditional television broadcasting is expected to contract at a compounded annual rate of 1.5% between 2020 and 2026, meaning that if you want to get into video content creation, VOD is absolutely the way to go.