Michael Wolff on YouTube's Bid to Become the New Netflix

ILLUSTRATION BY Rami Niemi

Google, long disappointed by profit margins at its video giant, chases a paid model in a crowded landscape — but it might be wishful thinking.

 On Oct. 28, YouTube, the free video giant, launched a $10-a-month subscription service called YouTube Red. The New York Times characterized the move this way: "YouTube generates billions of dollars a year running ads in its vast repository of music, video game and how-to videos. Now the video site and its parent company, Google, are hoping users will pay for the privilege to watch the same videos without ads."

In other words, YouTube is billion-dollar fabulous, but pay no attention to that. Now it has a new business with the exact opposite model from — indeed, one that seems inimical to — such fabulousness. Oh yes, noted the Times, the company "simulta­neously announced YouTube originals" — programming you can get only if you pay. So YouTube actually is Netflix now, or Amazon Prime or Hulu.

There are two perplexing things here: trying to unravel the nature of an ever-more-quickly transforming video business, one with no leaders or breakaway business models (except the ongoing dominance of the yet-to-be-upended television industry); and trying to unravel what the media means when it tries to intuit the new model from the press releases of companies that themselves seem confused about what the new model is.

To be a little clearer: 1) Google long has been disappointed by the effectiveness and profit margins of advertising on YouTube — indeed, YouTube's culture-shaking success is more media perception than a bottom-line fact (as noted by RBC Capital Markets analyst David Bank: An entire week of YouTube is about as valuable to major advertisers as a first-run episode of CBS' The Big Bang Theory). 2) It has implemented a series of strategies, none particularly successful — hiring pros to make YouTube content; promoting big-traffic YouTube stars via traditional media venues — in an effort to be less like a user-generated, homespun digital experience and more like television. 3) It is deathly afraid of the growing movement toward ad-blocking software — hence the flight to subscriptions. 4) It is deeply envious of Netflix, which makes about as much money as YouTube — though, as it happens, is even less profitable. 5) It always is trying to game-check Apple.

Indeed, just as Google was announcing its streaming, over-the-top service fastened to YouTube, Apple CEO Tim Cook was expounding at a Wall Street Journal conference on his company's efforts, so far not very successful, to find a meaningful place to "disrupt" the television/video marketplace. In Apple's still-abstract vision, the increasingly fractured video world is made logical and navigable by an iPhone-like device that will organize video apps. Google, similarly, long has dreamed of being the most efficient search engine for the video world. Cook repeatedly used the word "platform," meaning an uber system that controls lesser systems, and, as well, "content creators" — the phrase Google uses to describe YouTube.

But back to The New York Times. What the Times' view (and much of the other coverage of the YouTube announcement) reflects is a sense that the video market is in a state of tech-led disruption. But this might as well be characterized as hapless confusion — a con­fusion exacerbated by dubious assertions in press releases. YouTube, claims Google, and the Times repeats, "is the most popular video service in a world where people are spending less time watching television and more watching video on tablets and mobile phones." Except, in fact, Netflix use occupies more than double the bandwidth YouTube does — much of it spent not only watching the same programming that might be watched on traditional television (so how different is it from TV?) but also, via smart TVs like Apple's own, routing that programming back onto the television.

Partly this is more a disruption of definitions than of the business: YouTube might be the king of the low-value odd-lot video market, but it's a long way from cracking the high-value premium content market. Apple already might be asserting platform hegemony, but it's a long way from achieving meaningful content monopolies. Indeed, rather than platform dominance, Apple, YouTube and other new digital video outlets are facing a platform disadvantage: many distributors and limited high-value content. Netflix, for instance, says it will spend $6 billion on content licensing and production in 2016.

YouTube, whose central business premise has been the incredibly low cost of its mostly user-created content, in its new form will need to become an aggressive high-cost licensor. Naturally, given the plethora of new digital distributors — along with digital natives, offerings from such traditional content makers as CBS and HBO are competing — the cost of licensing only goes up in a seller's market and in a world where tech companies have no experience managing content costs.

Likewise, selling ever-more $10-a-month subscriptions depends on an endlessly expanding appetite for premium video or on convincing consumers to buy a hodgepodge of a la carte $10 packages rather than a cable or satellite carrier's, or someone else's, single inclusive one. Of course, in the theory of platform hegemony, a platform becomes so standard and powerful that consumers and content creators must fall in line around it. That, however, flies in the face of show business theory, wherein consumers follow a hit — hence the hit always rules, assuring a content producer's ability to do lucrative package deals.

So what is the new YouTube Red service? Reading between the lines, it is hedged bets, contradictory goals and, as yet, wishful thinking.

Michael Wolff is a THR contributing editor who writes frequently about media. His latest book is Television Is the New Television.

 

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