Sunday, October 25, 2015

What Happens When The Price Of Free Goes Up? YouTube Is About To Find Out

Written by Laura Sydell — The rumor that YouTube would once and for all put some of its endless content behind the paywall has perpetuated for quite a while, and finally the plan is the real deal.

Google, YouTube's parent, on Wednesday revealed the new subscription service, ambiguously called "Red," which will give people a way to watch videos without those buzzkill commercials — for $9.99 a month.

Engadget offers a quick rundown of YouTube Red's main attractions:

"[M]ost importantly, YouTube Red gives you ad-free playback and the ability to save anything you want to a device for offline viewing. YouTube Red will also encompass what was formerly called YouTube Music Key — it's now known as YouTube Music [—] will have its own dedicated app, and includes a full subscription to Google Play Music. ... If you're already a Google Play Music [subscriber], you'll also get a subscription to YouTube Red.

"Beyond music, YouTube Red also works with the recently launched YouTube Gaming service as well as Google's new YouTube Kids section."

Red is slightly pricier than the $7.99-per-month price tag of regular Hulu Plus and basic Netflix, as well as Amazon Prime, which gives access to video and music (and free shipping of actual things) for $99 a year, which works out to $8.25 per month.

But Hulu's own ad-free service costs $11.99 a month. Netflix charges new subscribers $9.99 monthly for its "Standard" offer that includes HD video and concurrent streaming on two screens, and $11.99 for "Premium" service that includes ultra-HD and four-screen watching.

On the audio side, Pandora has a free music streaming service, but ad-free Pandora One costs $4.99 a month. Its rival Spotify has the free version and the $9.99-per-month ad-free premium version with downloads for offline listening.

YouTube Music is expected to focus on music videos, with lots of room for discovery of new artists, remixes and covers. The launch date for that dedicated app is unknown, but Red broadly launches later this month and the new original content, ranging from short videos to full-length feature films, is expected next year.

Variety has a handy rundown of 10 original series that Red plans to debut next year. The shows are a mix of scripted and reality TV and involve some of the site's most popular creators, including a horror mystery series with PewDiePie (aka Felix Kjellberg) and a documentary about Superwoman (aka Lilly Singh).

In its anatomy of Red's making, The Verge argues that the new subscription service could mark a dramatic turn in YouTube's business:

"With Red, YouTube is signaling a definitive shift from an ad-funded video-hosting service to a media company that will eventually go head to head with Hulu and Netflix. YouTube has the potential to dominate the industry: if just 5 percent of its US viewers were to sign up for the service, it would add more than a billion dollars in annual revenue to the company's bottom line."

Google has tried twice before to get people to pay for video content and failed. There are also concerns that YouTube artists may not do as well financially under the subscription model.

And fundamentally the question is whether YouTube, after rising 10 years ago as a scrappy self-broadcast platform, will be able to sell its users something they've been used to getting at no cost.

"Once you offer something for free, it's really hard to get people to pay for it," says technology analyst Rob Enderle. "You can always take prices down, but it's really hard to take them up."

Rich Greenfield, an analyst at BTIG, says consumers are getting used to paying to avoid ads, and YouTube's sheer size gives it flexibility: "If 1 or 2 percent of the world's YouTube monthly user population pays, that would be what, 14 to 28 million paying subscribers? That would be a pretty tremendous subscription business."

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