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Can YouTube Red attract audiences in an already competitive video subscription market?

YouTube Red will offer ad-free video streaming

Yesterday YouTube took the wraps off a new $9.99 per month subscription service that will allow users to watch videos, including original shows and offline content, without ads. Carat's Dan Calladine gives us the lowdown on YouTube Red.

YouTube Red makes perfect sense as an evolution of Google’s video offering, and it follows four trends that we are currently seeing – a return to walled gardens, people paying to avoid ads, a need to differentiate in online video, and working without connectivity.

We’re moving away from the open web, with a return to the concept of the ‘walled garden’ of the pre-Google internet, where people would be encouraged to spend all their time in one safe, reliable destination, rather than the wider web. Introducing a paywall is the ultimate in a walled garden. And YouTube has designed three features to make this service more compelling and therefore encourage people to pay:

1. No adverts

Netflix, Amazon Prime Video and particularly Spotify have shown that people are willing to pay for the convenience of not having ads, and with over a billion monthly users it’s natural for YouTube to try to follow this model too, where the company can get more revenue per user ($9.99 per month) than it would from advertising.

About a quarter of Spotify’s users pay for an ad-free experience; YouTube Red will be seen as successful on a much lower percentage. For agencies this makes it harder to reach some audiences with advertising, as does, or course, the rise of ad blockers. People who use ad blockers when watching YouTube already get an ad-free experience, which is why original content is the next important part of the offer.

2. Original content

Online video used to be synonymous with YouTube, but now far more sites offer video, especially Facebook, which is working on a special video section. Red Originals is what YouTube is calling the exclusive content that will be produced by its current ad revenue share partners including vloggers and channels such as College Humor.

These filmmakers stand to get more revenue from the new original content they produce than from the ad-funded content they have been producing up to now, and among the content announced so far is Scare PewDiePie (in partnership with the producers of Walking Dead), and Single by 30, a romantic drama. All of this will be viewable on all platforms, and perhaps most importantly easily watched on connected TVs, or on older TVs via a Chromecast.

My concern is that almost all the content so far announced is aimed at young users, with very little for older audiences who are more likely to be able and willing to pay for it, although YouTube may be deliberately going for a younger age group to differentiate itself from competitors. Also, if YouTube can demonstrate that the monetisation works for producers, then more content should start to be produced, and I’d expect it to begin paying big money for its own House of Cards style series too.

3. Offline viewing

However, probably the most powerful initial feature of YouTube Red is that videos can be saved to watch offline. Over half of YouTube views now come from mobile devices, including tablets, and these are far more likely to suffer from poor or expensive connectivity than PCs. We’re seeing a rise of services that use little or no connectivity, for example the new messaging service Jott that can work even when there is no data connection, and it’s going to be attractive to offer this – something already a feature of Spotify, Amazon Prime and BBC iPlayer.

While YouTube Red does follow these four important rising industry trends (walled garden, no adverts, unique content, offline capabilities), it’s still a less compelling offer than the similarly priced Netflix and Amazon Prime, assuming that quality content is the main driver. But as with all Google products lots of improvements, refinements and new features will be added as it develops.

Dan Calladine is global head of media futures at Carat

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