Will Google Kill Traditional Television?

YouTube is about to change online video watching forever. Several sources familiar with the matter told AdAge that Google (NASDAQ:GOOG) will soon launch paid subscriptions for individual channels on its video platform. This new model of distribution was developed a means to convince content producers, viewers, and advertisers to make YouTube their preferred outlet rather than traditional television.

From sources’ reports, YouTube has already asked several channel producers to submit applications to create channels that would cost users between $1 and $5 per month. The channels would primarily offer episodic content, but YouTube is considering charging for libraries of videos, live events, and self-help or financial advice shows as well.

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Machinima, Maker Studios, and Fullscreen, whose channels have already become popular on YouTube, are expected to lead the transition to paid content, but according to the publication, the video platform is also looking beyond its current content providers to source content. However, it may have difficulties convincing its partners that paid-content channels are a profitable strategy, as many have worked hard to build up a free subscriber base. Now, if they participate, content providers will have to produce content that customers will want to buy.

The addition of paid subscriptions is not a change that is projected to take place sometime in the distant future. AdAge reported that the new model could begin as soon as the next quarter, with an experimental 25 channels leading the roll-out. The revenue split from subscriptions is expected to be similar to the 45-55 division that is typical for YouTube advertisers.

Google has already invested in professional content and given hints that YouTube would eventually charge for subscriptions. At an AllThingsD media conference last year, YouTube’s Chief Executive Officer Salar Kamangar noted that it was time to channelize YouTube because the unit wanted the service to “become the platform for the new video channel ecosystem developing on the Web.” As he explained, the Internet is becoming more niche-driven and participatory, making it ripe to become an alternative to traditional TV.
“We have long maintained that different content requires different types of payment models,” a Google spokesman told AdAge.

YouTube has been evolving its service for some time. The Google unit has spent hundreds of millions of dollars to develop professional content channels in an effort to make the site more like television. The technology company has formulated a mix of original programming and Internet clips into more than 100 different channels. With this new format, Google hoped to draw more viewers to YouTube and convince advertisers to spend more on ad spots.

Nomura Equity Research analyst Brian Nowack commented in a research note following Google’s third-quarter earnings report that the service’s “new channel format and higher-quality content” would likely boost revenue. And he was right — YouTube revenue doubled for the fourth consecutive year in 2012 and its top 100 advertisers spent 50 percent more for the whole year than in 2011.

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