How does a freemium or an AVOD service optimize revenue generation? It’s all about finding the balance between viewing time and optimal ad frequency. Here’s how VRV is getting it done.
Ad-free viewing key to VRV’s success
VRV, the video aggregation service for the fandom community, works with its SVOD partners to deliver a great variety of content to users outside of the paywall. The subscription model appeals to a specific set of people but has its limitations, according to Arlen Marmel, VP of Marketing and Distribution at VRV’s parent company Ellation.
“There are other people on the other end of the spectrum, that may have seen an ad <for VRV> on TV. It’s their first experience. If we hit them with a paywall right there, they would say “I’m outta here”. What we never want to do is turn anyone away.”
Providing plenty of free ad-supported content helps broaden the appeal of the service and is an additional revenue source to VRV and its partners. However, many of the fandom audience are in a demographic – the millennials – that hate advertising. 80% of millennials skip digital TV ads and 45% use ad-blockers.
Measuring the ad-content balance
Clearly getting the balance between ads and content is critical if VRV wants to keep the all-important millennials engaged. Henry Embleton, Head of Ad Products & Revenue at Ellation, is acutely aware of this challenge:
“Too few ads and there is no incentive to subscribe, and our content partners do not make the money they need to make more amazing content. Too many ads and your loyal userbase turns their back on you and poof, business over.”
To help optimize revenue generation while retaining the maximum number of users, Mr. Embleton monitors two key parameters of his service:
- Revenue Per Hour (RPH)
- Minutes Per User (MPU)
To calculate revenue per hour, divide total weekly ad revenue by the total weekly hours of video watched. Average minutes watched per user is the total weekly hours of video watched divided by the number of weekly unique viewers.
Testing the optimal ad-content balance
RPH is influenced by a variety of factors, like the price paid for the ad (CPM) and higher fill rates. However, service operators can directly influence RPH and MPU by varying the number of ads seen per ad break. Showing more ads per break will result in fewer minutes watched, fewer ads per break mean longer viewing times. Simply put, higher RPH results in lower MPU, and vice-versa.
Mr. Embleton performed two tests on the VRV audience to observe the impact of varying the ads seen by each viewer. In each test, the pre-roll ad was removed. In Test 1 the number of ads per mid-roll break remained at 2 with 3 breaks per 30 minutes. Test 2 increased the number of ads per mid-roll break from 2 to 3 and left the number breaks per 30 minutes unchanged.
Despite the increase in negative app store comments Mr. Embleton views test 2 as a success. Increasing the revenue per hour by 35% without impacting the number of minutes watched per user is a big win for VRV and its SVOD partners.
There are many other factors that VRV must consider as it seeks to find a balance between ads and experience. For example, what is the impact on app downloads of the increase in negative app store comments? However, when it comes to optimizing the value of the content in service, VRV has the tools it needs to get the job done.
Why it matters
Striking the right balance between ad frequency and viewing times is difficult but critical for any ad-supported or freemium video service.
Showing too many ads during a video drives people away. Showing too few doesn’t provide all the revenue a content provider deserves.
VRV has developed a clear way of measuring and testing to find the optimal balance between ad frequency and service success.