Paid YouTube channels: Would you subscribe?

Paid YouTube channels: Would you subscribe?

By Hayley Tsukayama, Tuesday, May 7, 12:00 AM

YouTube has moved swiftly in the past year to produce more original content to keep regular viewers coming back to its site, rather than simply stopping by to see the latest viral cat video. Now, the Financial Times reports that the paid model could go into effect as soon as this week, with as many as 50 subscription channels starting as low as $1.99 a month. The New York Times reported that channels could include those for children’s programming, entertainment, music and other topic areas.

We’ve been here before. Chatter about paid channels has been circulating ever since Google, which owns YouTube, made its first push to release regular, original videos on its site by paying about $100 million to fund promising talent. AdAge and the Wall Street Journal reported in January that the new paid channels could launch as soon as this spring.In a statement Monday, YouTube told The Washington Post that while it has nothing to announce at this time, it is “looking into creating a subscription platform that could bring even more great content to YouTube for our users to enjoy and provide our partners with another vehicle to generate revenue from their content, beyond the rental and ad-supported models we offer.”

Executives at Google have said that they expect 75 percent of all video channels to start on the Internet within the next decade, and it has clearly done its part to push that trend along. The most successful of these pull in serious revenue from advertising, and YouTube has said hundreds of its home-grown producers make at least six figures annually. The company has looking for way to make more money off the content it produces.

The most popular channels on YouTube have millions of subscribers (comedy Smosh leads with 9.6 million, according to VidStatsX). Some channels have become breakout stars in the YouTube world. The Young Turks political channel, for example, recently became the first news channel on YouTube to hit 1 billion views.

The ongoing shift in the way the average person watches video has been documented, and there’s money to be made in online television. The entertainment industry is paying close attention to how broadcast-quality Web TV experiments such as the Prospect Park studio’s revivals of “One Live to Live” and ”All My Children” on iTunes and Hulu or Netflix’s “House of Cards” perform.

Netflix, which recently reported that it has 30 million U.S. subscribers, passing the number boasted by HBO, predicted in a sort of media manifesto that the future of television is on the Internet. But Netflix is a fundamentally different company than YouTube. For their $7.99 monthly fee, consumers get access to a huge (if constantly changing) trove of high-quality content — much more than YouTube users would get with an equivalent number of paid channel subscriptions.

YouTube, with its shotgun approach, has been a lab for finding online audiences, such as bilinguals or gamers, that aren’t being served by current television. But to get those free viewers to throw the site a couple of bucks every month, YouTube will have to show it can deliver competitive, consistent, popular shows from the very start.

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YouTube Said to Plan Subscription Channels Within Weeks

Google Inc. (GOOG)’s YouTube will offer paid subscription channels over the next few weeks, people with knowledge of the matter said, expanding the choices for television viewers beyond traditional pay-TV packages.

Each channel will cost about $1.99 a month, with some variety in price, said one of the people, who sought anonymity because the plans aren’t public. The platform will help programming partners generate revenue beyond advertising and one-time rentals of movies and TV shows, YouTube said today in an e-mailed statement.

“We’re looking into creating a subscription platform that could bring even more great content to YouTube,” the company wrote, without discussing specifics.

With paid YouTube channels, Google would join Netflix Inc. (NFLX), Hulu LLC and Amazon.com Inc. (AMZN) in offering an online alternative to traditional pay TV. Fees could provide YouTube and its suppliers with a supplement to advertising revenue to pay for more expensive productions, and broaden options for viewers outside their cable or satellite package.

“Google feels comfortable with its market position and the user for this to be something that they would want to pursue,” said Scott Kessler, an analyst with S&P Capital IQ who rates the stock a buy and doesn’t own it. “Google wants to present a more professional outlet for these folks.”

Google, based in Mountain View, California, added 1.9 percent to $861.55 at the close in New York. The shares have advanced 22 percent this year.

Market Value

YouTube will generate an estimated $3.6 billion in revenue this year and accounts for as much as $21.3 billion of its parent’s market value, according to a report this month from Barclays analysts. That represents about 7.5 percent of Google’s market capitalization of $285.2 billion based on its closing price today, according to data compiled by Bloomberg.

Google has been stepping up efforts to boost the unit’s revenue beyond advertising. YouTube’s video-rental service includes titles from Viacom Inc. (VIAB)’s Paramount Pictures and Walt Disney Co. (DIS), for a typical price of $3.99.

The company also has built a state-of-the-art production facility near Venice, California, and is spending $100 million on grants to filmmakers and artists ranging from few hundred thousand to a few million dollars.

While those outlays are significant, YouTube’s most popular fare is typified by the young-adult goofing of channels like “Smosh” and comedian Ryan Higa. By contrast, Netflix and Amazon have been bidding up traditional television content such as “Breaking Bad” and “Downton Abbey,” while expanding into original programming with shows such as “Orange Is the New Black,” produced by Lions Gate Entertainment Corp. (LGF)

Strategic Impact

Subscription channels may help make YouTube a more exclusive destination for viewing online video, though they aren’t likely to have a big financial impact, said Kessler.

“This is more about strategically positioning Google and YouTube,” Kessler said.

Subscriptions may also provide YouTube a better path to generating revenue outside the U.S., where it can be more difficult to boost ad sales, according to Brian Wieser, analyst at Pivotal Research in New York.

“In a market like India or Indonesia, the costs to deliver content may be just as high as they are in the United States,” Wieser said. “But the opportunity to generate revenue is far, far lower, if you’re solely dependent on advertising.”

The Financial Times reported earlier today on YouTube’s plans.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net