YouTube Bets on Music as "Trojan Horse" to Boost Subscription Business

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YouTube CEO Susan Wojcicki

The move also appears to be a tacit admission by the company that currently there is more of that opportunity  in music subscriptions than there is in video.

YouTube CEO Susan Wojcicki confused attendees at the Code Media Conference in February when she said that she considered YouTube Red, the subscription video service behind originals like Cobra Kai and Step Up: High Water, “really a music service.”

Her comment took on new meaning when, on May 16, Google-owned YouTube said that it was overhauling its subscription business, doing away with YouTube Red and in its place introducing two new offerings: the $10-per-month YouTube Music Premium for ad-free music streaming and the $12-per-month YouTube Premium, which combines the music subscription with ad-free video viewing and access to original programming.

The rebrand puts music at the center of YouTube’s push to sign up subscribers, a move that YouTube global head of music Lyor Cohen says was driven by the “enormous consumption of music happening globally” on YouTube. It also places YouTube squarely in the race for music streaming dominance already led by Spotify (75 million subscribers) and Apple Music (50 million paid and free members). “Music subscription streaming is still relatively new,” explains Cohen, who joined YouTube at the end of 2016 to smooth over its relationship with the music industry and pave the way for the introduction of a subscription music service. “There’s so much opportunity in front of us.”

The move also appears to be a tacit admission by YouTube that currently there is more of that opportunity in music subscriptions than there is in video, a landscape overrun with competition from deep-pocketed players including Netflix, Amazon, Hulu and Apple. While those companies are pumping several billion dollars each into premium programming and rich talent deals, sources say the budget for originals has not expanded meaningfully from the high nine-figures it spent last year despite the recent success of more high-profile projects like Cobra Kai. “The premium subscription service has been a tepid success at best,” notes GBH Insights analyst Daniel Ivesof early efforts to draw paying members through original programming alone. YouTube has not disclosed how many subscribers Red has.

YouTube executives contend that the focus on music doesn’t mean a de-emphasis on original programming. Instead, the creation of the two services is meant to clarify for consumers the value of YouTube’s subscription offerings. (Previously, the music streaming features in Red were often overshadowed by the marketing around original series.) “We determined that rebranding to YouTube Premium was a better fit to explain the added value and new benefits,” says Adam Smith, vp product management at YouTube, adding that originals “have been a key driver of subscriptions for YouTube Red, and we expect that to expand under YouTube Premium.”

Indeed, entertainment remains a driver of viewing on YouTube. After music, the most-consumed form of content on the platform are movie clips and trailers, then comedy and TV shows and clips, according to a new report from Morgan Stanley. YouTube only needs to convert a small percentage of the 1.8 billion users currently using its free, ad-supported platform into paying subscribers to become a true subscription threat, one that Morgan Stanley — which values YouTube at $160 billion (more than Disney) — estimates could have 25 million subs by 2022. Ives believes music streaming is the “low-hanging fruit” that could help YouTube quickly build up a subscriber base before it invests further in resource-intensive original programming: “It’s their Trojan horse.”

A version of story first appeared in the May 23 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

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