YouTube Paid Subscriptions: New Channels Risk

Video giant hopes viewers will pay to access niche content

It was a confluence of events Eric Schmidt must have loved.

Surely the Google executive chairman noticed two announcements in early May that occurred just days after he audaciously suggested to an audience of advertisers in New York that Internet video had effectively replaced TV.

First, Sen. John McCain proposed legislation that would allow consumers to buy cable channels on an a la carte basis. Then Schmidt’s own company unveiled a new offering that allowed users to subscribe to channels on YouTube for a monthly or annual fee.

Schmidt may have a felt a tremendous sense of validation: Here was Google providing the very service the TV industry had failed so dramatically to deliver that a senator was attempting to force the industry’s hand.

But don’t let this convenient backdrop to YouTube’s highly anticipated announcement oversell its magnitude. A comparison with YouTube’s existing offerings provides better perspective.

For one thing, there’s a huge difference between the channels McCain wants to free from the traditional pay-TV bundle and the ones YouTube has brought to market. There is little overlap between the biggest brands on TV and the 54 channels YouTube is making available across digital platforms for anywhere from 99¢ to $6 per month.

If the biggest brand YouTube has to brag about at this point is UFC, that’s not exactly a show of strength in the marketplace. But in all fairness, Google rarely goes big out of the gate with anything, preferring to iterate along the way instead of making a splash at the start.

Nevertheless, YouTube will likely suffer the comparison with its last big original programming splash, a fleet of free ad-supported channels that had real pedigree attached, from superstars like Jay-Z or brands that were homegrown phenomena like Machinima.

That’s a striking contrast.

YouTube was probably better off waiting for buy-in from some higher profile auspices before launching this latest initiative. In their absence, it’s evident that no one of stature felt strongly enough about this business model to be an inaugural partner.

Maybe there is one such partner waiting in the wings, ready to blow the doors off our expectations. But given YouTube is already couching this as a “pilot program,” don’t hold your breath.

While the new subscription business will inevitably be compared with the funded channels, there’s a lesser known aspect of YouTube’s business that may offer a more apt juxtaposition. Back in early 2010, YouTube began offering a selection of movie titles on an a la carte basis. It began with documentaries at the Sundance Film Festival before expanding to encompass more prominent titles from the major studios.

If that’s news to you, well, that likely reflects the viability of the offering, which was completely overshadowed by successes elsewhere, from iTunes to Vudu.

This forgotten a la carte mode, which lives on at the cross-platform storefront Google Play, offers a more instructive comparison with the subscription channels than the funded channels, which unlike the other two, doesn’t require the user to engage in a financial transaction with YouTube.

Having users think of the platform as more than just a place for free content is a barrier built into the very DNA of YouTube, which arguably has been a zero-cost environment long enough that consumers have been conditioned to keep their hands out of their wallets.

With the addition of subscription channels, YouTube is coming to the place where it is trying so many business models that there’s risk of confusing its massive user base. Whether that’s diversification or desperation depends on your point of view; it just might be a little of both.

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