The Math behind the AVOD Business
The AVOD business makes sense only with scale. So let's assume our starting point is 10m installs at an avg CPI of Rs7. That's Rs 7crore burn for installs only.
Now let's lavishly assume that 20% use the App for 3months. Average 4 streams per month at 10mins per stream. That's 2m users x 4 streams = 8m streams per month.
With a fill rate of 50% assume 4m will watch a pre roll ad at generous cpm rates Rs 300.
Now for the math.
4000000 x 300/ 1000 = 12lacs per month.
Let's assume all these users follow the same behaviour for the next 3 months - an inflated probability on LTV, but let's stay with that for now. That's 36lacs. And further top our assumptions to say that we would play 2 pre rolls and one mid roll per stream... all revenue assumptions being the same.
So effectively we are saying Rs 36lacs x 3 ( 2 pre rolls one midroll) .
Which is a notch over Rs 1,00,00,000
Be sure the revenue assumptions are lavishly inflated numbers. And if some may argue that the CPI at Rs 7 is still very high, let's bring that down to Rs 5? So we re-calibrate our spends downward to Rs 5,00,00,000.
Now watch your spends to revenue ratio at 5 : 1 and you'll realise why I insist this is a negative gross margin business. Meaning to earn Re 1 you are spending minimum of Rs 5. Apart from the cost of content, manpower and technology.
So where is the merit?
The smarts lie in finding the right partnerships to bring that CPI down to zero. And the ones who do so will be able to build a sustainable, robust, profitable, scale-able AVOD business.
Agree? Disagree? Let’s discuss!
Head of Marketing @ Cashfree Payments | All things Startups & Marketing
5 年Very interesting article. Thanks Zubin!
Public & Private Equities | Angel to IPO investing
5 年Tech bills? Largest line item
Vice President, Web3 & Gaming at ONE Championship
5 年Most digital business with the absence of virality / organic I believe will face the same issue since the LTV will never be disproportionately high considering consumers are shy to open their wallets digitally in a country like India. I think building strong content and building strong viral hooks (Invite 2 friends, get 1 month subscription free or whenever a friend subscribes, you and the friend get +1 month like Zomato etc.) are the ways where your blended CPI should come down significantly. Besides this I believe you should only embark if you intend to spend since you will only benefit from organic on scale (Organic due to search / ranking / algorithmic suggestions on Google / iOS). The math should be looking at organic of 50%+ where CAC / LTV equations can become even close to comparable. Also agree with you that partnerships tend to be the best way to grow inorganically since your customer is already sitting on a variety of digital platforms. I also believe alternate monetization strategies in terms of branding, subscription etc. should be a necessity to increase LTV and the intention should be to keep chipping at while you have the ad revenue as gravy on the side.
Co-founder-Videostori Partnership Specialist
5 年Good discussion around but my two cents to it is that any OTT business will not survive with advertising revenue...it needs to have subscription revenue...and for that to come you need compelling content and few players. Secondly the kind of figures you have considered for calculation of advertisement revenues it clearly shows that there is very little engagement..... engagement is the key to be profitable in the long term
LAif begins at 70! await post web3 Forever grateful for the opportunities the universe provides and manifests
5 年Why is the revenue only assumed for 3 months? It should be 15 months to break even on the CPI cost and another 9 months for other costs . The real trick is to get sensational content which I’m afraid is the big problem,great content spreads virally ... so far none to match Mirjapur in drama ... not even family man, bard of blood and made in heaven. When I was in rural areas in Jharkhand and UP the most pirated content sold was only Mirzhapur and to some extent gandi baat