Google’s Big Red Video Play

A decade after the tech behemoth acquired YouTube, does ‘Scare PewDiePie’ scare the SVOD universe?
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YouTube has made a somewhat muted entry into the subscription video world, but the fact that there’s no less a titan than Alphabet (the newly christened Google holding company) behind YouTube Red has forced competitors to take notice. Principals at the $9.99 monthly purveyor insist that it’s foremost a music service—more in competition with, say, Spotify, than with Netflix, Amazon and other hot streaming services. But as the definition of television continues to evolve, digital natives with no connection to TV, either figuratively or literally, have a steadily multiplying number of direct-to-consumer digital channels—be it Seeso or CBS All Access or Hulu or YouTube Red—clamoring for their monthly payment.

It’s a serious fight for mindshare and money. That this younger generation has grown up on YouTube gives the video portal a major leg up on the digital competition, some believe. “They already have the snackable video market—they invented it. Why not extend it to full-length scripted or unscripted shows?” says Dave Smith, CEO at media consultancy SmithGeiger.

Traditional networks have the most to lose, and even if so far the losses are contained (CBS, in fact, is expecting $800 million in OTT revenue by 2020; see story on page 4), Red is a shot across the existential bow.

Several watchers see Red as a toe-dip in the subscription content waters, just more R&D for a company that kept Gmail in beta for five years. Others go farther and call the venture a Trojan horse that could quickly and relatively cheaply leverage the sheer scale of YouTube, which draws 1 billion monthly visitors and $4 billion in annual revenue. But while the Googleplex has long been devoted to forward-looking quests for driverless cars or space exploration, it may not be easy to get people to pay for something that the same brand, quite famously, has given away for free.

“There’s a lot of hope on the part of Google that they can turn this into a business,” says Brian Wieser, senior research analyst, Pivotal Research Group. “But it does not seem like a meaningful business at this time.”

Seeing Red

YouTube unveiled Red in the fall, and its first slate of originals premiered Feb. 10. Those included Scare PewDiePie, a reality-adventure series starring the Swedish video maven; feature film A Trip to Unicorn Island from YouTube hotshot Lilly Singh; and film Dance Camp, from AwesomenessTV. Susanne Daniels, YouTube global head of original content, is shooting for 20-25 series in 2016, and 30-35 in 2017. Most of the slate will be unscripted, as “the dollar goes further there,” she says.

Stars are hatched based on analytics—PewDiePie, also known as Felix Kjellberg, has close to 43 million followers—and, frequently, a gut feeling from YouTube execs. Daniels, former president of Lifetime and The WB, left her post as MTV programming president last summer to take on YouTube originals. She credits her four children with helping her better explore YouTube’s countless crannies. “I have the full spectrum,” she says of their ages: 6, 14, 17, 20.

Players in the digital video space give her props for being a thoughtful student of the newer-age medium. “She’s been smart in her approach, taking her time to learn the platform and how it works,” says one veteran on the talent side. That a storied TV executive would make the shift to digital video was seen as a win for those toiling in that world. “It validates this space, given her background,” says one producer who asked to be unnamed.

The platform may have changed for her, but Daniels says her focus has remained the same amidst the career shift. “They’re different types of networks with distinct brand identities,” she says. “That the shows and movies become hits is the essence of what my mandate is anytime.”

The competition for young eyeballs is ruthless. Daniels cites the TV series Pretty Little Liars on Freeform, Faking It on MTV and Gilmore Girls on Netflix (Daniels ran The WB when Gilmore Girls was developed and on-air) as direct competitors. “We compete against anyone who’s targeting teens and millennials,” she says.

Digital natives watch more non-linear TV than traditional TV, according to a SmithGeiger study, and way more mobile video than any other kind. People ages 18-24 average nine hours and 47 minutes of screen time each day, including 1:30 spent on live TV, 1:42 on non-linear TV and 6:35 on their mobile or PC. People 25-34—still within the YouTube Red sweet spot—averaged eight hours and 10 minutes, including 1:41 on live TV, 1:54 on non-linear TV and 4:34 on their mobile or PC.

The list of prominent digital players grows every day. It includes Vimeo; Go90, which Verizon launched in the fall; FullScreen, a You-Tube channel from AT&T and The Chernin Group; and veritable graybeards like Dailymotion, among many others, each vying for young consumers on the go. Verizon and Hearst recently linked up on a new mobile venture, called Verizon Hearst Media Partners, to launch digital channels narrow-casting to millennials and plurals.

“There are dozens more in the pipeline to launch,” says J.C. Cangilla, senior VP of business development at New Form Digital. “They all need new and original programming.”

In Red’s case, it’s worth emphasizing that unlike Netflix or Hulu, the service does not have plans to acquire off-network TV series or traditional Hollywood features to draw eyeballs. Only projects with proven YouTube ties get the green light.

This Is a Test

Before almost all of the streaming players, there was YouTube, which was hatched by a trio of PayPal alumni in 2005, and was acquired by Google late in 2006 for $1.65 billion. The platform has morphed from goofy home videos to goofy home videos and professionally produced content. YouTube does not share many user figures, but says that of its billion-plus users, daily ones have increased 40% from March 2014.

The seemingly endless range of YouTube stars include the comedy duo Smosh, singer Christina Grimmie and fashion vlogger Zoella.

Red offered four original projects to start, and later announced a feature-length documentary from Gigi Gorgeous and Academy Award-winner Barbara Kopple and the series Foursome from AwesomenessTV. YouTube has to “up their game,” says analyst Wieser, in terms of the original content to justify the $9.99 monthly price tag. Moreover, the all-things-to-everyone quality that makes You-Tube such a rich and colorful bazaar can make it a tough sell for advertisers seeking to target a slice of the population. “YouTube consumption is not nothing, but it’s pretty broad,” Wieser adds. “It’s not concentrated on any piece of content.”

One Hollywood talent manager notes how plenty of YouTube users enjoy ad-blocking software, making the ad-free upsell a challenge. “People are used to getting YouTube for free and paying for Netflix,” he says. “It’s very difficult to change the behavior when YouTube has been free for years.”

With each new subscription service they opt in for, cord-cutters’ monthly TV bills may be creeping back to those cable TV levels. Hulu is $7.99, and $11.99 for the commercial-free tier. Netflix is $8.99 and Amazon Prime comes out to around $8.25 a month. Then there’s video portal Vessel ($2.99), comedy channel Seeso ($3.99), CBS All Access ($5.99) and music services Tidal and Spotify (both $9.99).

But for the heavy YouTube user, 10 bucks a month to bump commercials and build endless playlists may be a bargain. “People who consume YouTube consume a lot of YouTube,” says Adam Wescott, partner/cofounder at Select Management Group, which represents digital-age talent. “Consuming it without ads is a real incentive for the really loyal user.”

TV of Tomorrow

While YouTube is where the likes of PewDiePie and Gigi Gorgeous built their followings—they’re called YouTubers, after all—it’s not the only option for the so-called “hyphenates” (writer-producer-performers). Freddie Wong’s star was hatched on YouTube, but his comedy series RocketJump airs on Hulu. Earlier this year, Netflix ordered a series, Haters Back Off, from the YouTube star Miranda Sings.

Amazon has not inked a YouTuber-helmed vehicle…yet. “I know the interest there is high,” says one insider in the digital video realm. (Neither Netflix, Hulu nor Amazon would comment on Red.)

The digital video space is getting more crowded. A blog post from Twitter last month revealed the platform’s plans to work with video creators. “Now, you can film or upload videos directly from Twitter with our mobile video camera, view clips seamlessly on your time line with autoplay, send videos to your friends privately in Direct Messages, and watch the best videos Tweeted every day through our new @video account,” it read. Facebook is close to launching its own creator monetization model, which may have compelled YouTube to sign up talent to deals with Red. “It’s coming, and it’s coming in a big way,” says Michael Bienstock, CEO of Semaphore, which works with YouTubers on their monetization strategy.

While the hopeful young stars of yore may have dreamed of a deal with Fox or HBO, Netflix represents “the Holy Grail,” in the words of one Hollywood vet, to many video creators. But many are plenty happy calling YouTube home. “They could shoot a pilot, and maybe the show’s a bomb, and they waste a year,” says Bienstock. “That comes with a very high cost, as that’s a year talent could’ve spent building their channel and broadening their brand on a platform that’s already proven successful for them.”

YouTube’s initial foray into subscription video may be measured, but with Google’s legendary stock price tickling $700 these days, Red can up its game in a hurry if YouTube thinks there’s a significant win on the horizon. “[Having] some low-cost originals doesn’t require them to go whole hog,” says Wieser. “But they have the resources if they want to. If Google says it wants to compete, it will compete.”

YouTube has made a somewhat muted entry into the subscription video world, but the fact that there’s no less a titan than Alphabet (the newly christened Google holding company) behind YouTube Red has forced competitors to take notice. Principals at the $9.99 monthly purveyor insist that it’s foremost a music service—more in competition with, say, Spotify, than with Netflix, Amazon and other hot streaming services. But as the definition of television continues to evolve, digital natives with no connection to TV, either figuratively or literally, have a steadily multiplying number of direct-to-consumer digital channels—be it Seeso or CBS All Access or Hulu or YouTube Red—clamoring for their monthly payment.

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