Pricing and plans in a subscription service: can microtransactions change the OTT space?

06.12.19

by Marco Lorenzi

We live in an era of increasingly overwhelming content choices, where the rise of subscription streaming services - both in sports and entertainment - is underpinned by the ever-evolving habits of a demanding audience

06.12.19

by Marco Lorenzi

We live in an era of increasingly overwhelming content choices, where the rise of subscription streaming services - both in sports and entertainment - is underpinned by the ever-evolving habits of a demanding audience

Content is still the foundation of a successful OTT service. Organizations are constantly looking for the ‘unicorn’ content strategy able to encompass all the elements users today are looking for. However, it’s important to remember what consumers demand: they want to be able to choose the content they want to consume, at any time and any place. Most importantly, such services need to be supported by fresh and impactful user experience alongside a compelling pricing strategy.

New and highly anticipated on-demand streaming services have landed OTT space, across sport and entertainment. They are doing so with the support of marketing campaigns that are moving away from a message of ‘quantity’, focusing instead on original content and the premium ‘quality’ of their proposition.

Customer-centricity, to which we dedicated a previous blog piece, is one of the core pillars of a strategy for a subscription-based service such as OTT. Empire magazine’s editor Terri White suggested during a recent podcast by Monocle 24, titled ‘Will Apple be the next Netflix?’, that customers today can get easily lost and may struggle to find relevant content within their chosen platform. She said “algorithms are not yet accurate enough to outline a coherent array of choices for end users to navigate through and perceive the actual value of their streaming service.”

The adoption of creative pricing strategies, along with a flexible execution and implementation of these, has become something more than a ‘nice to have’. One-time and recurring (weekly, monthly, quarterly, etc.) charges are by far the most adopted pricing models within OTT. Needless to say, the fragmentation of content across different platforms and the lack of a ‘one-stop-shop’ - especially in sports - has opened a debate about whether different pricing and plans options could actually be preferable to the subscribers.

We considered whether OTT and sports could decide to adopt a pricing plan based on microtransactions - single, one-off, purchases that bring selected events or formats to the end user’s screens - in order to drive growth. Here is what we found out.

Content is king, pricing sits next to it

Pricing is an art form. Clearly, there is no one right pricing strategy for every organisation and OTT business. It’s a matter of research and experimentation, often addressed by specific trends and mass habits. However, building an agile system to support multiple pricing models, with the power to test new models quickly, provides subscribers with more ways to engage, and naturally leads to competitive advantage.

Netflix has undoubtedly set the precedent for the entire OTT space. One-month free trial and subsequent monthly plan with recurrent charges has become standard for streaming services, both in entertainment (where we almost exclusively talk about video-on-demand) and sports (with a combination of live and VOD). We spoke a few months ago about the use of free trials as a vanity metric in the world of subscription services, yet we also reiterated the need for streaming platforms to leave space for customers to come and go as they please, no strings attached. A smooth exit experience can lead to a comeback.

In a progressive deflection from traditional broadcasters and cable TV operators, freemium models, promotional rates or content/format bundles have been trialled at various degrees. They have not always been successful. This is due to a widespread demand for simple solutions in a world now populated by multiple options to access content on demand and live. Paying a regular fee to access a sea of available content is - in the entertainment space - the most followed pattern. It’s also true that the already mentioned ever-evolving nature of the OTT space is bringing to our screens a number of different services and it’s hard to assume users will keep subscribing to each of them just to try and access as much of the content as they can.

Sports OTT: are microtransactions a possibility?

The straightforward answer is yes, they are. In fact, the sports space has already witnessed a few examples of alternative pricing options, mainly in light of a completely different nature of the content offering if compared to the well-known Netflix, Amazon Prime and others.

Sport is mostly appealing when it’s live, for it brings the excitement and unpredictability of an event that can be followed and dissected via multiple devices. Its combination with VOD options also represents one of the core elements. Think of subscription services that follow the tennis season across the globe, or again the platform that brings the intensity of an NFL season up until the Super Bowl, and so on.

The shifting sands of the sports and tech space have defined the path of innovation in recent years. One of the groundbreaking examples has been initiated by the NBA, which recently piloted a new pricing model based on microtransactions, as a way to further engage with fans and increase monetization. The test phase allowed fans to watch on dedicated OTT services the last quarter of a close or important game for $0.99, stressing the importance of capitalizing on audiences’ needs even for ‘events within the main event’ at a reduced price. It’s still unclear whether the league will actually bring the project to the next stage and make microtransactions available for widespread purchase. However, this type of smaller, event-driven transactions seem to be an easy win for OTT video platforms in order to exploit the user journey.

Why microtransactions, then? This pricing model was firstly introduced in the gaming industry, more than a decade ago. Developers started offering to PC and console gamers small, optional content packages, so called add-ons to the base game. These downloadable packages - originally intended to be larger expansions of the games - ultimately changed shape with the advent of smartphones. Operators started to see the possibility of offering cosmetics or in-game currencies to slightly modify the base game.

This monetisation model has rapidly become the norm in the gaming industry, boosting revenue figures and spawning a huge new category of ‘free’ games exclusively driven by in-app purchases. And here is the trick: rather than a reshape of pay-per-view model, the NBA has chosen for impulse-based transactions, low cost and highly effective. Think of that moment when a game is entering its most intense and exciting phase - users receive a notification that prompts them to purchase access for under a dollar. All in one tap.

The opportunities on the horizon are many. If, for many fans, there is little motivation to watch live games outside of their favourite sports and leagues, the NBA thought of something that goes beyond fast-paced highlights consumed post-event. They’ve created another opportunity to convert casual fans into recurrent customers via a simple and highly effective hook.

Closing thoughts

It’s clear that a pricing model based on microtransactions has its advantages. However, it has yet to be proven that a live sports setting can actually fit this model as a mass scale. Moreover, user experience becomes crucial yet again to drive user adoption. The UX needs to be highly personalised, seamless and - most importantly - intuitive. With the market of broadcasting rights animated by various entities in search of the right solution towards owned & operated or traditional distribution, a microtransactions model could represent the right choice to monetize on users who are only occasionally accessing sports content.

Sports leagues may look to adopt this model and potentially replicate it in the near future. Especially those with robust OTT platforms already built and running, could see this type of offering as complementary to the current pricing model. Even other big digital content players might begin to experiment with this model, especially if they will be able to secure a wider array of sports rights, given the experience in developing and monetizing OTT platforms.

Finally, let’s talk Amazon Prime. The streaming service has already started including various sporting events as a live addition to their VOD catalogue without altering their core pricing model, which remains based on a monthly recurring charge (also payable annually). With the introduction of Premier League football matches on the service this month, a new chapter is being written. And, who knows, it might lead to further innovation around pricing in the near future.

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