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Don't forget about YouTube Red

Executive editors Natan Edelsburg (@twatan) and Adam Flomenbaum (@flobombin), and guest contributors, bring the inside track on the latest developments in the TV space.

It feels like ancient history since Google made headlines in 2006 by acquiring an up-and-coming, 65 employee, video website start-up known as YouTube for $1.65 billion. The company had been founded just 18 months earlier by former Paypal employees, and had quickly catapulted itself into a dominating market position, in what was then a very different internet. At the time of the purchase, Youtube had 72 million visitors per month and visitors were watching 100 million videos a day. Today, the site has well over one billion unique visitors per month with visitors watching approximately five billion videos per day.

Looking back at the news, one can’t help but shake one's head. According to a CNN article, part of Google’s motivation was “to become more competitive with MySpace, which currently ranks in second place in online video market share.” And from NBCNews: “Although some cynics have questioned YouTube’s staying power, Google is betting that the popular video-sharing site will provide it an increasingly lucrative marketing hub as more viewers and advertisers migrate from television to the Internet.”

Nearly a decade after Google’s acquisition, with the consumption of media rapidly changing, YouTube has taken what seems like the logical next step, unveiling YouTube Red, a new, paid subscription service.

The most basic features are clear. Red is ad-free; it allows subscribers to watch videos offline; and it will keep your videos playing while you look at other apps. Additionally, your Red subscription will also give you a subscription to Google Play Music. But, there is some uncertainty of what will come next. What original content will Red offer? And Will, and maybe more importantly, can Red be a competitor to Netflix and Hulu?

While one may not think of Red as a natural competitor to Netflix or Hulu, it has set itself up in a terrific position, possessing some impressive and envious numbers. YouTube mobile alone already reaches more 18-49 year olds than any cable network in the country. And as Forbes points out, with one billion users, if Red gets just 10% of those users to subscribe, that’s 100 million subscribers, which would far exceed Netflix’s 69 million. Additionally, YouTube has a dominating international presence, with 80% of its views coming from outside the United States.

YouTube has had original content for years, but one thinks of the site more as a host for others to upload their own videos. Users can upload videos of their children biting each other or a video of a song by an unknown South Korean musician or a video of a random man showing how people dance in different decades. This model is much different than other OTT providers. The move into paid subscriptions feels somewhat like a tech start-up acquiring users and then looking to monetize. While figures haven’t been released for 2015, YouTube isn’t quite profitable, although its revenue was $4 billion in 2014. This puts it in a great position since it has a huge base and a separate, working revenue stream.

The issue for Redis whether it can develop enough content, and good enough content, for people to want to sign on. Few people will pay the fee simply to have YouTube offline, an ad-free experience, or to keep videos playing while opening other apps. Once again, they’re in a great position because serious video creators continue to turn to YouTube first - but even that fact is in jeopardy.

For Red, all the ingredients are in place for the site to make a huge impact and to compete with Netflix, HBO, and Hulu; but it will be a tall task.

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