The herculean task of making Youtube more like Netflix
Analyzing the effort to make Youtube subscription based & whether Youtube's business would ever be more than an ad platform.
Youtube(YT) is trying its best to monetize the platform by being more than just an ad business. A look into that effort and the different premium versions launched by YT over time.
Youtube Red, launched in 2015, tried to monetize on two most common use cases; music & crowdsourced videos. It was a $9.99 subscription for ad free, offline access to YT plus YT originals. They also launched a separate YT Music app just for music.
With over a billion users and ad business thriving, YT launched YT Red, one of the first paid subscription service launched by Youtube. With Youtube Red, users pay monthly $9.99 to use it ad free with offline and background support. YT music was also launched along side as a standalone music app as a competition to Apple Music and Spotify. Plus, YT planned to launch original series as part of it as well, giving users access to premium content. It seemed like a desperate attempt to compete in the paid streaming services businesses which was slowly being taken over by Netflix, Prime and other competing services.
But YT red didn't turn out to be much of a success, ~1.5m subscribers after 1 year of launch. What people were paying for is specialized apps for each type of usage: Music → Spotify, Live TV → Pay TV, Originals → Netflix. What YT red provided was breadth but not much specialization.
YT wasn't much successful with YT Red. They had just 1.5m subscribers after 1 year of launch. If you compare that to YT total users (unpaid): ~1 billion and paid subscribers of Apple Music: ~15m and Spotify: ~40m; that does look like something went wrong. What happened was probably lack of specialization into any one category. YT Red tried to justify the subscription price by combing music, YT and YT originals; all of which didn’t match up with quality compared with standalone services like Spotify, Netflix, Live TV (Pay TV) etc. Each of these services caters to a specific type of user. For e.g, a music enthusiast loves the convenience of building a playlist, choosing any songs at any particular point of time, explore new music etc. YT had always been a video platform where people can watch any video for free. At some point it did become a place for lot of people to hear music and YT Music (launched along with YT Red) did try to fulfill this use case. But it kind of paled in comparison to Spotify in terms of features. Quoted from this article back in 2015 -
“The lack of a true library, playlist creation and more robust offline features means that a large subset of consumers won't be able to use YouTube Music full-time.”
For a music enthusiast who does more than listen to music on Youtube, he/she would only pay for the added convenience which YT music was unable to provide. As a result, not much paid users opting for YT Red.
Fast forward to 2018, YT launched YT Premium and relaunched YT music app, with features focused towards a dedicated music app. They also planned to replace the old Google Play Music app as well & YT is now positioned as a music first platform when it comes to marketing.
YT took a music first approach to the whole things and it became evident when Susan Wojcicki said this back in Feb 2018 on Recode before the launch of the YT premium.
“YT Red is a service which is a really a music service. We have an amazing collection of music; we have all these music videos and on top of all that you have the ability to watch all of YT ads free and on top of that, you have YT originals.”
This was of course different from how it was pitched back in 2015. But on the face of it, this looks like a good approach. Users are already paying one or the other music subscriptions; probably it's Apple Music or Spotify or something else. If YT music can be on par with them in terms of music collection (which it can leverage YT for) and features, users would be willing to pay for the app especially with added benefits of YT like finding a song which only exists on YT or listening to videos of songs.
The most interesting of all is the pricing. YT music is set at $9.99 while YT premium is set at $11.99. It's just $2 of difference & you are getting the entire YT ad free, offline & background support. YT is still desperately trying to catch up with streaming competitors at the risk of upending it's ad businesses.
YT premium looks more like add-on to YT music; the price difference is also set similarly. It's just $2 and makes for a compelling offer. People would be more willing to pay $2 to get all of the YT ad free and offline. It seems like a long term play from YT at the risk of affecting its thriving ad businesses. Why ? I think part of it is that YT (and Google) pay heed to the fact that SVOD services are gaining in popularity with Netflix, Hulu, Amazon prime. The thinking here could be that once people start subscribing to YT premium with the appeal of just $2 difference, YT can double down on professional content like YT originals. It seems like a good strategy, but there are some caveats:
The users of YT music are different from users who want to watch video on demand. Even if YT gets a lot of users from YT music, it might be the case that the same users don't show much interest to video content.
Professional content requires lot of content investment. Not saying that YT doesn't have money but as the content spend grows, you might see the $2 difference increase which can lead to YT music users dropping out altogether.
Professional content on television vs crowdsourced content on YT are two separate things. If you mix two of them, the brand value or the differentiation is diluted. If you see paid content along with random YouTube videos, the first thought process is whether it's just another “random" video. YT may just launch a separate app to resolve this.
What would be interesting to see is how YT approaches YT originals. It would be difficult to compete head on with other popular streaming services just because original/professional content takes lot of time and money. But with YT TV also gaining popularity, a combined YT pricing across three services - Music, Streaming, Live TV may become appealing.
It would be interesting to see, how YT approaches the whole professional content space in terms of tech, branding and the content itself. With Disney+, Netflix, HBO Max having & gaining lot of expertise in content and production; the space of streaming content is becoming crowded like never before. YT may also leverage it’s users from YT TV which again is a different use case altogether but can at least be leveraged when it comes to pricing. If YT originals become good enough, or if YT is able to bring third party content as part of the premium plan; YT may end up as the one subscription to rule them all - Music, Streaming, Live TV. With foot in all these three services, as more users sign up; it becomes easier for YT to compete on price. But, it’s a long game and it’s still too early to tell.