How YouTube Aims to Persuade Millennials to Pay for Programming

Youtube Red Comp - H 2016
Courtesy of Mills Entertainment; Courtesy of Apple

Youtube Red Comp - H 2016

The video giant rolls out a slate of original web series launching Feb. 10 that it hopes will draw users to the new $10-a-month Red subscription service: "Junior has to convince Mom and Dad to put in on their credit card," says one analyst.

A version of this story first appeared in the Feb. 12 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

YouTube original content chief Susanne Daniels is facing her first big test since joining the company from MTV in the fall: persuading cash-strapped millennials who happily watch videos for free to pay for the streamer's first slate of originals.

YouTube is prepping the Feb. 10 release of four projects it has funded in the past year, including a reality series starring YouTube sensation Felix Kjellberg, better known by his alias PewDiePie, and the docu A Trip to Unicorn Island, featuring Canadian vlogger Lilly Singh. Other programs, including a scripted comedy series, are set to roll out later this year.

Originals are the missing piece for Red, the $10-a-month subscription service YouTube launched in October with the promise of zero advertising, streaming music and exclusive shows. "One of the most important things will be original programming," says Mike Goodman, digital media analyst at research firm Strategy Analytics. "Getting House of Cards really put Netflix on the map."

In a signal of its ambitions for originals, YouTube previewed three of the projects at Sundance on Jan. 24, just a day before festival darling The Birth of a Nation received a standing ovation. Attendees say YouTube's projects impressed and turn Red into a much more compelling offering. 

This isn't YouTube's first crack at investing in programming: The company, which operates production facilities in Playa Vista, spent more than $100 million in 2012 to lure the likes of Madonna and Shaquille O'Neal to create entertainment channels. Of the more than 160 that were funded at the end of the program, 90 are still active, meaning they have uploaded new videos within the last two months. 

But this time, YouTube has tapped former WB Network president Daniels to helm originals after the executive spent three years overseeing such series as Scream and Faking It as MTV's programming head. YouTube's strategy is to fund bigger-budget passion projects from some of its homegrown stars who boast millions of fans.

"I'm looking to generate hit shows," says Daniels. "I think 'hit' is defined by what is culturally resonating with our target audience, and that's what we're going to look for."

Daniels acknowledges that she wants YouTube's originals to help build up the Red subscriber base over time. She points to Sing It!, an upcoming comedy from the Fine Bros., as an example of a series that blends both digital and traditional stars, adding that she'd like to fund more of these broader projects in the future. But building the relationship with YouTube creators' fans remains a top priority. "On YouTube there's such a strong connection between stars and their audiences," she says. "There's an ownership there. I want to try and tap into that."

YouTube execs hesitate to compare their efforts to Netflix, Hulu or Amazon, but Red gives the streamer, which boasts more than 1 billion viewers, a foothold in the lucrative paid video business. It also diversifies YouTube's business beyond its estimated $8 billion-plus in annual ad revenue. (Google, which owns YouTube, does not break out financial results for the business.)

But will people pay? Netflix dominates the subscription space with a 77 percent market share, according to Strategy Analytics, and a majority of customers pay for only one streaming account. "YouTube might have a youth-oriented product, but Junior has to convince Mom and Dad to put it on their credit card," says Goodman. "The number of subscription-based products that have succeeded by appealing to a youth-oriented market is small."

Feb. 10 5:36 p.m. Corrected to say that 90 channels funded through the YouTube original channel initiative are still active.