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Is YouTube Really Competing With Traditional TV?


One thing is certain: With its new paid subscription plans, Google is leveraging its saturation of the mobile device market.


When YouTube (NASDAQ:GOOG) recently revealed plans to introduce a pay-for-content subscription model, a single question sprang to mind among market investors: Why bother?

Hadn't Google heard about the unprecedented subscriber losses seen by TV providers like Cablevision (NYSE:CVC) and DISH Network (NASDAQ:DISH) in 2011? And did the company know that those losses portended a massive beating -- specifically a 58% decline in annual viewership -- for the popular Web-based streaming video site Hulu (NASDAQ:CMCSA) in 2012?

It's plausible to say Google is leveraging its 70% saturation of the mobile smartphone market. One projection has smartphones accounting for more than 69% of the entire global mobile phone market by 2018. Pair this with the popular belief that -- as reported by NPR -- the next billion people to "go online" will do so via a mobile device. Then consider the following comment made by YouTube's Director of Product Management Shiva Rajaraman at GigaOm's Mobilize conference in September: "Back in the day, YouTube was synonymous with the desktop. Now we're seeing people's first experience is on tablets and smartphones."

Globally, 25% of YouTube's traffic is driven through mobile devices. As to whether or not this percentage will grow, Rajaraman sees South Korea -- where roughly 50% of YouTube traffic is driven by mobile -- as an indicator of "what's to come."

For content distributors like Machinima, Fullscreen, and Maker Studios --which create YouTube channels based on online talent -- Google's plan to charge anywhere from $1 to $5 for select, premium content could be a boon. Scott Weitz, CEO of Driver Digital, a video content aggregator and production company with 135 million unique YouTube hits in 2012, appreciates the advantage of Google's move.

"Google is creating a massive market to compel a lot of content creators to make great content, which viewers have expanded access to," Weitz says. "They're focused on building a platform and working with companies like ours to make sure that we're discovering new talent, and making new content that the end user is passionate about."

Weitz believes Google is developing tools to help content producers better monetize that audience, and beyond subscriptions, he predicts Google will be developing methods for users to better socialize content, like subscribe and share buttons within video windows.

But what Google is decidedly not doing is stealing the spotlight from old school TV companies, as some media stories have implied.

AdAge, which broke the story of YouTube's shift into the pay-for-play space, called the move "an attempt to lure content producers, eyeballs, and advertiser dollars away from traditional TV, according to multiple people familiar with the plans."

Gunther Sonnenfeld -- a digital brand strategist who has built content, analytics, and transmedia platforms for Toyota (NYSE:TM), the US Army, and Adobe (NASDAQ:ADBE), to name a few (more on Sonnenfeld's professional background can be found on his blog) -- doesn't see Google transforming into a media empire anytime soon. In fact, he believes that, at least for now, YouTube will be unable to access higher quality content pushed out by top-tier television and film makers, which is the kind of content that drives serious revenues.

"Of all the premium content creators that went to YouTube from Hollywood, about 60% flew the coop," Sonnenfeld says. He explains that for a number of production companies who owned the first set of channels YouTube launched last year, the economics simply didn't work out. YouTube doesn't pay its providers based on ticket or content sales, but instead on ad impressions -- the number of times an advertisement is viewed on a webpage. And for many studios, this cost-return model simply didn't cut it.

"So, yes, Google is leveraging its saturation among mobile devices, but this is a short-term strategy. They are basically saying, 'We are going to eradicate the problem with scale of adoption, not incremental value,'" Sonnenfeld says.

What this means is that Google is looking for a way to monetize its massive video inventory, much like it has monetized search with ad sales. Sonnenfeld sees YouTube utilizing the scale offered by the Android's market saturation to offer people a lot of content with a pay wall. The one thing the company has forgotten to improve, he believes, is the quality of the content itself.

Twitter: @brokawbrokaw

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