BUSINESS

Paying For YouTube: The Next Experiment In The TV Revolution

04/12/2015 05:01 EDT | Updated 06/11/2015 05:59 EDT
Would you pay to watch YouTube videos, uninterrupted by advertising?

That's a question a lot of business analysts — and users — are now pondering, as reports emerge that Google's video-streaming site is in the process of launching an as-yet-unnamed monthly subscription service.  

"Probably not, I don't know if I could justify it," says Michael Senchuk, a music blogger in Edmonton. "But if it was a couple bucks a month, maybe."

So far YouTube has declined to confirm specifics, but early reports suggest the cost of the premium service may be $10 a month.  

Whatever the price, the effort will be yet another test of what it takes to get consumers to fork out hard-earned cash for the type of creative content that the internet once offered for free.  

"Netflix has proved people are willing to pay," says Duncan Stewart, a media analyst and trend forecaster with Deloitte Canada. "I'm not suggesting YouTube's success is a foregone conclusion, but I understand why they're trying it."

YouTube is already a global giant, with more than one billion users and $4 billion a year in revenue.

New streaming services

It's not the only content company trying to win over subscribers via the internet. The revolution in how people consume content is ongoing:

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Sony introduced a pay-TV service called Playstation Vue last month in three American cities;

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Dish Network launched Sling TV in January;

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HBO and Showtime are planning stand-alone services;

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Rogers and Shaw have Shomi ($8.99 a month) while Bell has Crave TV ($4 a month);

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There are reports Apple will launch a 25-channel service later this year at a rumoured cost of $20 to $40 a month.

Budget-conscious Canadians will need to add up their entertainment costs, especially now that Canada's telecom regulator has ordered that a new pick-and-pay system for cable TV customers be put in place by 2016. 

Ordering from an a la carte menu of services, including Netflix and YouTube plus specialty channels, could end up costing more than the prix fixe of a cable subscription.

Once upon a time the internet was free

Not so long ago, users believed everything on the internet should be free. 

Music, books, video games, television and movies are all industries that have seen their business models blown apart — either by pirates or via legitimate digital companies. And while Netflix, Apple and Amazon have been successful in convincing consumers to pay for online products, others have struggled.  

Canada's largest circulation newspaper, the Toronto Star, attempted to recover revenue lost through falling sales in 2013 by installing a paywall on its website, charging readers who opted for online news.

But a little more than a year later, the paper announced the wall will be coming down. Its digital focus will shift instead to a tablet edition.  

"It's very hard to go from free to a subscription model," says Ramona Pringle, creative director of Ryerson University's Transmedia Zone.

"With Netflix, paying has always been the deal. With YouTube, the users are content creators as much as they're content consumers. They're part of the value proposition. That could cause some pushback against paying."

Pringle notes that the bar has been set high by other subscription models. "Netflix's House of Cards has a huge budget, and Amazon's Transparent won at the Golden Globes."  (Transparent won best comedy and best actor, while House of Cards is both an Emmy and Golden Globes winner.)

More than cat videos

"The stuff that's going to be part of a YouTube paid service will not be kitten videos," predicts Deloitte's Stewart. He expects the service to up its game and to target specific customers.

"There are two types of users," he says.

"Big TV-watchers who want to pay as little as possible to get as much as possible, and real connoisseurs who are willing to pay more for special programming.

"I like to say that subscription television will be craft TV, in the same way we have craft beer. Just like with beer, it tends to be for those who want strong flavours. And those people may consume less, but they'll pay about the same."

Stewart recently analyzed what the world's television watchers pay on an hourly basis for different types of services.

His math was simple — take the billions of hours watched globally and stack that up against the revenues of traditional networks and subscription services.

Consumers pay less when they watch ads

His numbers show that traditional TV with advertising generates just four cents an hour, while Netflix is five times more lucrative at 20 cents an hour.

"Television with advertising tends to be cheaper on a per hour basis than television by subscription," says Stewart.

And he points out that the former president of Bell Media made a similar distinction between types of users in December, when the company launched Crave TV, its Netflix-like add-on for subscribers.  

Kevin Crull noted that 90 per cent of Canadians subscribe to TV services, and suggested cord-cutters aren't true television aficionados.  

"The 10 per cent that aren't TV subscribers, in a general sense, they're not TV lovers," Crull said.

The director of communications for Netflix has little to say about YouTube's effort.  

"If you provide content that people want to watch in a timely fashion and at a reasonable price, they will pay for it," Jonathan Friedland told CBC News.

Consumers will decide what works and what doesn't. As the American writer and internet thinker Clay Shirky observed six years ago, "that is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place."

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