The global video streaming industry is on the rise, and it is set to grow even more in the next few years. By 2024, it is expected to bring in $325.4 billion in sales, and by 2028, that number will jump to $419.9 billion, growing at a steady rate of 6.58% each year. A big chunk of this growth will come from video ads, which are $191.3 billion in 2024 and are predicted to reach $252.0 by 2028. The United States will be a major player in this, contributing $140.7 billion and it reaches to $184.4 billion by 2028, around 4.4 billion people are expected to use streaming services, making up about 54.7% of the global population.
Well, that’s a lot of stats. But, if you are thinking about starting your own streaming service, there is a lot more to consider. From understanding market trends to setting up your platform with a video tech stack, it can be complex. Whether you are inspired by Netflix’s success or have your own unique idea, this guide will help you through the key steps. We will look at how to use AI to recommend content, leverage cloud technology for growth, and choose the best revenue model. Netflix, for example, has 222 million subscribers worldwide and dominates in the US and Canada with 75 million subscribers. With the streaming market booming, there is a big chance for you to make your mark. Let’s dive into what you need to know to get started.
Growth potential in the streaming industry
Assuming the growth rate for revenue from video ads could vary by ±0.5% from a base rate of 6.58% (annual growth rate in). Using this variation, the growth rate for video ads in some possible years could be between 6.08% and 7.08%. We've projected a few years with this variation.
Further, with the US digital advertising industry hitting new records, its contribution to video advertising revenue also follows global patterns and experiencing ~7.0% YoY growth recently. Following this growth pattern, varying it by ±0.5% from the base growth rate of 7.0%, the growth rate for the US contribution could be between 6.5% and 7.5%.
This graph visualizes the growth of the global video streaming industry from 2024 to 2028, with the following features:
- Total revenue: Represented by the green line, showing growth from $325.4 billion in 2024 to $419.9 billion in 2028.
- Video ads: Represented by the purple line, starting at $191.3 billion in 2024 and reaching $252.0 billion by 2028.
- US contribution: Also shown in green with a dashed line, illustrating growth from $140.7 billion in 2024 to $184.4 billion by 2028.
- Number of users: Represented by the purple dashed line, showing an increase from 4.0 billion users in 2024 to 4.4 billion in 2028.
Big shift towards OTT streaming
The video streaming market has seen explosive growth in recent years and continues to expand rapidly. More people are cutting the cord with traditional cable TV and opting for streaming services. This shift is driven by the convenience of watching content on-demand and the variety of options available. This market includes services that allow users to watch video content over the internet, such as Netflix, YouTube, Disney+, and Amazon Prime Video. The OTT streaming market in the US is booming. Starting an OTT (Over-The-Top) streaming business in the US can be highly profitable, but it is essential to understand the market landscape to position yourself effectively. Here’s a simple overview to help you get started.
Market trends
1. Content is king: Unique and high-quality content is crucial. While established platforms have extensive libraries, there is a growing appetite for niche and original content. Think about what unique value or perspective you can offer, be it specific genres, exclusive shows, or curated collections.
2. Subscription models: Most successful OTT services use subscription models (SVOD), where users pay a monthly fee for access to all content. However, ad-supported models (AVOD) are gaining traction, especially for those who prefer free access with occasional ads.
3. Technological advances: With the rise of high definition (HD), 4K, and even 8K content, and advancements in streaming technology, viewers expect high-quality visuals and smooth playback. Investing in technology and user-friendly interfaces is crucial.
4. Personalization and AI: Consumers appreciate personalized recommendations and tailored content experiences. Using AI to analyze viewer preferences and suggest content can enhance user satisfaction and engagement.
Key players and competition
Major players in the market include Netflix, Amazon Prime Video, Disney+, and Hulu. Each of these platforms offers exclusive content and original series to attract subscribers. Additionally, new competitors are emerging, often focusing on niche markets or specific genres to capture a segment of the audience. To stand out, focus on differentiating your service. This could mean specializing in a particular genre (e.g., documentaries, independent films), offering exclusive content, or creating a unique user experience.
Revenue and consumer behavior
The video streaming industry generates billions in revenue annually. Subscription-based models, where users pay a monthly fee for unlimited access, are popular. Advertising-based models, where users watch free content with ads, are also growing, particularly on platforms like YouTube.
Legal licensing considerations, data and analytics
Securing content rights and licenses is critical. Ensure you have the legal permissions to stream movies, TV shows, or other content. This involves negotiating contracts with content creators, distributors, or studios. Utilize data to understand viewer behavior, preferences, and engagement. This information helps in refining content offerings, marketing strategies, and overall user experience.
Types of OTT monetization models
Subscription-based Video on Demand (SVOD): In this model, users pay a regular fee, either monthly or annually, to access a library of content. This is similar to subscribing to a magazine but for movies and TV shows. Technically, the platform uses a Content Management System (CMS) to organize and display videos, a Payment Processing System to handle regular charges, and User Accounts to control access based on payment status. Streaming Technology ensures videos play smoothly by adjusting quality according to the user's internet speed.
Transactional Video on Demand (TVOD): TVOD allows users to pay for each movie or show individually, just like renting a DVD. The platform uses Pay-Per-ViewTechnology to charge users each time they watch content, while Content Protection(DRM) safeguards against piracy. A Content Delivery Network (CDN) helps deliver videos quickly and reliably, and Analytics track user purchases to understand popular content.
Advertising-based Video on Demand (AVOD): This model offers free content but includes advertisements. The platform uses Ad Insertion Technology to place ads within the video stream, managed by an Ad Server that controls when and where ads appear. User Data Analysis helps target relevant ads based on viewing habits, and Streaming Infrastructure ensures both videos and ads play smoothly.
Hybrid model: The hybrid model combines elements from different monetization strategies, such as offering free content with ads and premium content through subscriptions. It requires a Flexible CMS to manage various types of content access, a Complex Payment System to handle different revenue streams, and AdvancedAnalytics to integrate data from subscriptions, rentals, and ads. It also uses DRM andAd Technology to protect premium content while integrating ads into free offerings.
Freemium model: In the freemium model, users can access basic content for free but must pay for additional features or premium content. The platform uses Content Segmentation to differentiate between free and paid content, Upgrade Mechanisms to facilitate easy transitions from free to paid options, and Access Control to manage what users can view based on their subscription level. Personalization algorithms recommend premium content based on user preferences.
Microtransactions: The microtransaction model is a way of generating revenue by allowing users to make small, individual purchases within a service or platform. Instead of paying a large amount all at once, users can buy small extras or upgrades as needed. For example, in a streaming service, this could mean paying a little extra to access premium content or special features beyond what's included in a basic subscription. This model provides users with more flexibility and control over their spending, while businesses benefit from the potential for frequent, smaller payments that can add up over time.
- For instance, Pocket FM, an over-the-top (OTT) platform specifically for audio series uses this model by allowing users to buy "coin packs" to access more content beyond their daily free limit. These coin packs are priced as low as Rs.9 in India and $1.99 in the US, making it easy for users to pay a little at a time. This strategy has led to a 417% increase in Pocket FM's revenue, reaching Rs.82.8 crore in FY23. Additionally, Pocket FM offers a limited number of free episodes per audio series every 24 hours and charges for binge-listening and accessing more episodes. This shows how microtransactions can provide flexible spending options for users and significant revenue growth for businesses.
The cost to make an OTT platform
When considering the cost of developing an OTT platform, it is important to understand the differences between a basic and a custom solution.
White-labelled OTT platform (Basic)
The development typically costs between $10,000 and $50,000. This budget covers the creation of a standard platform with essential features such as a content management system (CMS), basic user interface design, video streaming capabilities, and essential backend infrastructure. This setup is ideal for startups or smaller projects aiming to offer streaming services with standard functionality.
For startups or smaller projects, this setup is a good choice as it provides essential features without breaking the bank. Often, this kind of setup is available as a white-label solution or a template from third-party providers, which can save time and reduce costs.
Example: Rocketlane TV(A business OTT platform for professionals)
Let's take a look at Rocketlane TV to understand how this works in practice. Rocketlane, a customer onboarding SaaS company, and a FastPix customer created an owned media platform(OTT) that is like ‘Netflix for ecosystem-led growth’ Rocketlane TV. This initiative keeps their community engaged and ensures sustained audience growth.
Custom OTT platform
When investing in a custom Over-the-Top (OTT) platform, the costs can vary widely, ranging from $50,000 to several million dollars. This cost depends on how complex and advanced you want the platform to be. Here’s a breakdown of what influences the cost:
- Custom features: A tailored OTT platform includes advanced features like personalized user interfaces, AI-based content recommendations, enhanced security, and high-quality streaming technology. Building these from scratch can be expensive because it requires a lot of technical expertise and development time.
- Backend systems: To support many users and content, you will need scalable server architecture, advanced content delivery networks (integrating with multiple CDNs), and integrated payment systems. Developing these systems to handle high traffic and ensure smooth performance adds to the cost.
- Custom branding and user management: Adding unique branding elements and creating complex user management systems (like handling subscriptions or user profiles) further increases the expense. Integration with various third-party services also adds to the cost.
- Using APIs that fit your roadmap: One way to manage costs is by using video APIs (Application Programming Interfaces). APIs allow you to build and customize your platform using existing services and infrastructure. This can keep initial costs lower because you are leveraging pre-built tools and technologies. However, as your platform grows and you need more services or higher performance (like handling millions of viewers or thousands of movies), the costs would rise. API based platforms like FastPix offers usage-based pricing to keep your costs in control. Depending on your how much you use and the extent of your videos being streamed by viewers (per-minute basis) – pricing gets applied.
Even if you’re building a basic OTT platform, using APIs is a better way to do it, since you can build and customize your platform however you want it to be. Every single part of FastPix is engineered to help developers overcome complexities in video and focus on what really matters - delivering reliable video faster. FastPix APIs (see documentation) are simple enough for easy implementation and powerful enough to scale as fast and as far as you need. Our products and features work individually or together. The in-built extensibility means, as your roadmap evolves, you'll spend less time engineering and more time scaling your business.
Cost of video infrastructure
You can estimate that the total cost for video infrastructure, like really!
Taking a scenario to estimate, let’s take an average video length of 2 hours and 20 minutes (140 mins), with 250 uploads or streams per month. That’s 140 mins x 250 videos.
Also expecting about 500,000 views per month, with viewers watching almost 75% of each video at 1080p (Full HD) resolution. The total cost that sums up, would be near around $50,000 – which you can expect for a custom OTT platform with extensive features.
The costs are broken down as follows: Smart Video Encoding would cost $1,120. Storage would cost $94.50, and streaming would cost $47,251.70. Adding these costs together, the total estimated expense is $48,466.20.
To try out and check your own cost estimations, you can visit FastPix pricing page.
Cost of development
When considering development costs, it is important to weigh not only the hourly rates but also the potential trade-offs in quality, communication, and efficiency.
In the USA, developers charge $150 per hour, which totals around $210,000 for a project requiring 1400 hours. This high rate often reflects premium quality, better communication, and ease of working in the same time zone.
In contrast, developers in India cost $25 per hour, totaling around $35,000 for the same number of hours. Although significantly cheaper, there might be challenges related to time zone differences and varying quality standards.
Ukrainian developers fall in between at $40 per hour, with a total cost of $49,000. They might offer a balance of cost and quality but could still face some challenges with communication and time zone differences. The choice often depends on the project's complexity, the need for high-quality results, and how critical time zone alignment is.
