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YouTube Red Launches: Is It Really Worth $10 per Month?

YouTube Red, the No. 1 video site’s commercial-free subscription service for video and music, is now open for business in the U.S.

The real question is how many people will pay Netflix prices for the service — mainly for the privilege of watching their favorite YouTube content without ads.

To be fair, YouTube Red is more than that. For $9.99 per month (after a one-month free trial), users also get unlimited access to the Google Play Music streaming service, which is stocked with 35 million songs.

There are two other key features: the ability to save videos in the YouTube app for offline viewing (although it’s already possible to download videos from the desktop web site), and the a background-play mode so you can listen to audio while using another smartphone app.

Meanwhile, YouTube has acquired exclusive rights to an initial slate of 10 original series and movies, including the “Scare PewDiePie” reality-adventure series with the YouTube video-game megastar and Rooster Teeth’s “Lazer Team” sci-fi action-comedy. Even if such fare inspires you to open your wallet, the originals won’t begin premiering until January.

After taking a quick spin on YouTube Red, I was struck by the fact that it’s not a very different experience from the regular, free version. Note that YouTube already lets users skip many ads they’re not interested in after five seconds with the TrueView ad unit. The offline-viewing tab in the app could come in handy. But I have trouble imagining even hardcore teen and millennial YouTube fans thinking $10 per month a great deal.

The most significant element of YouTube Red that might move the needle is the bundling of ad-free music streaming. So, it’s as much a bid to compete against the premium versions of Spotify or Apple Music as it is vying for paying video subscribers.

Some in the industry suspected YouTube’s motivation with Red was to offer a paid alternative to ad-blocking services, in a more convenient and usable way, although Google execs downplayed that as a factor.

Ultimately, the challenge for YouTube Red is that the basic value proposition runs counter to what YouTube’s billion-plus users have always come back to the site for: free videos. They’re already trained to skip the ads whenever possible. If the service gets a bigger flow of original and exclusive programming, that could help tip the balance, but for now YouTube Red just doesn’t look compelling.

Another point: YouTube is a gigantic video sponge, sucking up well over 100,000 hours of user-uploaded content per day, and the vast majority of stuff doesn’t carry any ads anyway. With YouTube Red, you’re paying to watch the top 5% of most-viewed content that gets advertising. Of course, that’s still a lot — YouTube says more than 1 million creators participate in its ad-revenue sharing program.

In launching the Red service, YouTube also angered many content creators, who were given a take-it-or-leave it option: either participate (to receive a 55% revenue-share split from subscriptions, the same as ad-supported videos) or their content would be made private. Rights issues related to YouTube Red prompted ESPN to pull all its video from the free site, because the sports programmer’s contracts preclude it from offering the clips via the digital subscription-video service.

YouTube has sought to calm the waters with content providers by claiming they’ll see nothing but upside from Red: On a per-user basis, a paying YouTube Red member will generate more money for creators than a typical ad-viewing, free user, according to the company.

But YouTube itself may not have huge hopes for Red. At the launch event last week Robert Kyncl, YouTube’s chief business officer, addressed the question of whether Red might cut into ad sales by shifting a portion of the audience to paying customers. His response: even if YouTube Red wildly exceeded uptake expectations, it would still have only a minimal effect on ad revenue.

It’s a stretch to think YouTube Red could get the kind of traction that Netflix or Hulu have had on the SVOD front anytime soon. Should YouTube add more originals to the mix, that could make it more attractive. And it’s worth keeping this precedent in mind: Broadcast TV is free with a digital antenna, but the major networks earn billions in retransmission fees from pay-TV providers (while preserving their ad revenue streams). If YouTube can pull off a similar maneuver, the strategy will be a clear win.

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