Author(s): Raghu Gopal
This week, YouTube introduced a television streaming service called YouTube TV. The product will be commercially launched in the coming months. For $35 per month, subscribers will have access to more than 40 network and premium channels.
YouTube TV is one of several streaming TV services competing to attract a younger audience accustomed to viewing content online and at the time of their choosing. AT&T recently launched its DirecTV Now service, Sony offers PlayStation Vue, and Dish Network provides Sling TV.
We believe that YouTube TV will appeal to many potential viewers. The subscription fee covers unlimited cloud-based DVR functionality, artificial intelligence-powered search and six individual accounts, essentially the equivalent of six set-top boxes that can be accessed anywhere.
YouTube TV will carry the three main US networks, ABC, CBS and NBC, as well as content typically available via cable subscriptions. This includes content from Fox and sports broadcaster ESPN. The company is still in negotiations with other content owners including local stations. The new service can be viewed on PCs, mobile devices and any device compatible with Chromecast. At launch, the service will only be available in the US.
To date, such streaming services haven't been guaranteed success, but are nonetheless redefining traditional broadcast TV. For a growing part of the audience, the concept of linear TV — that is, being required to watch content as scheduled — seems like an anachronism.
Google acquired YouTube in 2006 for $1.65 billion when it was a straightforward video sharing site. The company understood that it was buying the future of video consumption, recognising that the YouTube experience had the potential to become a more convenient way to view broadcast content.
It's unlikely that there's much margin to be earned through subscription fees for YouTube. Rather, in the long run, the Google subsidiary will enable TV advertisers to maximize the return on their ad budgets using highly targeted advertising. The shotgun approach will be replaced with rifle accuracy.
YouTube TV represents a significant move for Google for several reasons. Firstly, the company is moving toward offerings similar to those provided by its rivals, which have been doing a better job of generating revenue from pay-TV services. Secondly, Google is looking to broaden the range of content available beyond user-generated videos, with a greater focus on premium programming. Thirdly, the company is aiming to create new revenue streams to avoid relying solely on advertising. The move will strengthen Google's position with premium content owners that do not want their content to be available for free on an ad-funded basis.
Although the new YouTube TV service seems competitively priced, we have some reservations.
The US market remains heavily saturated. Operators and cable providers are strengthening their positions in video and TV. Netflix has demonstrated an appetite among consumers to pay for video content. However, Google is entering a crowded market and YouTube TV isn't a sure thing. Google's previous failed attempts to sway viewers to pay for video underline the challenges that lie ahead. We expect more providers to move into this market as households continue to either reduce their TV packages with their existing providers or cut their spending on premium TV bundles in favour of online TV services.