Online video is an evolving new business for content creators. Most video on the Internet is free. It may be supported by advertising, but the consumer does not have to pay in order to consume it other than with time. There are many companies, though, who charge for their content. Content owners, of course, want to make money on their content – and if they get direct revenue for it, that is what they prefer. There are few business models for online video today.
The first business model is video-on-demand. This is where a consumer pays to rent a piece of content for a limited amount of time, typically 24-48 hours. The content is usually downloaded on to a device, but it could be streamed as well. Companies using this model include Amazon and Apple. The second business model is subscription. This is where a consumer pays a set price per month to watch all of the content he or she wants. Companies using this model include Netflix and Hulu. The third business model is download-to-own. This is where a consumer purchases a digital copy of a piece of content and downloads it to their device. Companies that use this model include Apple.
Consumers in some part of the country are willing to pay more than others. Combing the revenues for the three business models mentioned above, we can analyze who spends and where they live. Consumers on the coast of California, living in and arond Chicago, and on the east coast are more likely to pay more for online video than consumers in other parts of the country.
The zip codes where people are, on average, willing to spend the most per resident are:
- 07078 – Short Hills, NJ
- 22066 – Great Falls, VA
- 10007 – New York, NY
- 10514 – Chappaqua, NY
- 60043 – Kenilworth, IL
Residents in each of these areas spend $4.57 or more per resident per year for streaming and downloading video.
Another method of looking at consumers is through tapestry segmentation. Esri, a geographic information systems company which also does data analysis, developed a tapestry segmentation that classifies US residential neighborhoods into 65 unique market segments based on socioeconomic and demographic characteristics.
A recent analysis of online video viewers (both those who did and did not pay) found that the segment that has the biggest presence in the top online video viewers are Dorms to Diplomas, Metro Renters, Laptops and Lattes, Trendsetters, and Military Proximity residents. Residents of these segments, though, are not as willing as others to pay for online video. For example almost no segments where Dorms to Diplomas residents are dominant have an online video spend index of 200 or more. That means this group is willing to watch online – if it’s free.
Residents of Top Rung are willing to pay for online video. Over 99% of the census block groups dominated by this segment have an average of at least $2.72 spent on online video per resident per year – and many have much more. This is twice the average American household. This is clearly a segment to target. Connoisseurs are also willing to spend. Over 73% of the census block groups where that segment is dominant is willing to spend at least $2.72.
Who are the residents in these lucrative segments for online video? Residents of Top Rung neighborhoods are mature, married, highly educated, and wealthy. The median age is 44.2 years and the median household income is $182,041.
Lifemodes and Urbanization can also be used to classify consumers. Segments within a LifeMode group share an experience such as being born in the same period or a trait such as affluence. Urbanization groups share a locale, from the urban canyons of the largest cities to the rural lanes of villages or farms. High Society (one of the LifeMode segments) residents are willing to pay for online video. Over 80.5% of census block groups where this tapestry segment is dominant have residents who, on average, spend $2 or more per year on online video. This information can be used to help inform companies on who and where to target their services.