Can YouTube Steal Profits From Netflix and Hulu?

YouTube, which is owned by Google (NASDAQ:GOOG) announced premium, paid channels last month and the question remains as to whether their new service will eat into the profits of Netflix (NASDAQ:NFLX) and Hulu, which is owned by Disney (NYSE: DIS) and Comcast (NASDAQ:CMCSA). YouTube’s plan is to offer paid channels at prices of 99 cents to $7.99 per month with a variety of content providers including Sesame Street,  National Geographic Kids, and UFC.

YouTube’s new service reflects their new direction towards integrating paid content. In a YouTube blog post, they explained, “Every channel has a 14-day free trial, and many offer discounted yearly rates… Once you subscribe from a computer, you’ll be able to watch paid channels on your computer, phone, tablet and TV, and soon you’ll be able to subscribe to them from more devices.” For the millions of Netflix and Hulu subscribers accustomed to this model, the announcement may seem less than revolutionary, but it may actually provide a different historical model than those services.

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While some might see YouTube’s move as an opportunity to capitalize on the growing amount of subscribers to services such as Netflix and Hulu, other commentators see their new model as a potentially disastrous one which bears more resemblance to the newspaper model than the prominent video services. Sean Barger of Paid Content explains that the problem begins with YouTube’s transition from a free model of service to paid service, while Netflix and Hulu have always been a paid service. In this way, YouTube’s current trajectory mirrors the newspapers that simply couldn’t recover from the expectations of free service. And at this point, will users accustomed to YouTube being free turn around and be willing to pay for service?

Even if users are willing to try out YouTube’s new service, the biggest problem remains: a lack of popular, desirable content. Comcast, which owns NBC Universal, is noticeably absent while other providers are unhappy with Google’s portions of revenue which are upwards of 45 percent, as Barger explains. To further compound these issues, Google remains firmly in control over the relationship between provider and viewer, which might push some of the most popular providers elsewhere.

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While YouTube’s new services providers an interesting alternative to paid, subscribed content, it seems improbable that the new service would have any effect over the dominance of service providers Netflix and Hulu. Unless YouTube is able to court prominent content providers, that doesn’t seem likely to change.

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