April 21, 2018

YouTube rolls out the red carpet

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At the end of October 2015, YouTube took on the likes of Netflix and Spotify by launching a subscription service in the US costing $9.99 per month. Avid YouTubers who sign up to the premium offering, named Red, will, according to YouTube, get multiple benefits for their money:

  • Dodge the ads that are served before and during videos on the regular platform
  • Access exclusive content or ‘originals’ by YouTube stars such as PewDiePie and Lilly Singh that will be commissioned and funded by YouTube and be posted behind the paywall
  • Use Google Play Music for free
  • Download music and videos to mobile devices to watch and listen to later offline
  • Listen to videos and music in background mode on mobile devices

It’s quite a move for the ad-funded video-streaming behemoth that has revelled in providing free content for over a decade. However, the subscription model is extremely compelling: if just 5 per cent of US YouTube users transition to Red, the company will add a cool billion dollars to its bottom line.

However, the question on many people’s lips is one of cannibalisation. Will Red reduce the attractiveness to YouTube’s advertisers of the free service? YouTube thinks not. As reported by The Verge, in the unlikely event that all US television viewers (100 million people) sign up to Red, this figure would still comprise only a minimal slice of YouTube’s global audience (less than 10 per cent). It therefore argues that advertisers will still receive the majority share of YouTube’s audience and will continue to support and grow the ad-funded model.

With 300 hours of video being uploaded to YouTube every minute, viewer figures increasing by 60 per cent year on year and the average session lasting 40 minutes, engagement with the platform is high. Arguably the subscription model could bolster engagement levels even further as the platform will be able to collect more personal information about its subscriber base, enabling it, like Netflix, to get closer to its customers and commission original content that it knows will appeal to its audience segment.

However, this is not the first time that YouTube has attempted to monetise its offering. In 2013 it introduced paid-for channels and, later, fan-funding tip jars. Neither proved particularly successful, so the jury is out on whether the subscription model will go the distance. What do you think?

Louisa Osmond, Teaching Fellow About Louisa Osmond, Teaching Fellow

Teaching Fellow at Edinburgh Business School. Part of the Marketing team, focusing on digital marketing.