Google Is Set To Transform The Online Video Streaming Industry

Oct.30.13 | About: Alphabet Inc. (GOOG)

Google (NASDAQ:GOOG) acquired YouTube in 2006 for about $1.6 billion. Since then, the company has been investing heavily to popularize the site and also to improve its content and delivery qualities. It has been trying various ways, like advertisements and paid channels, to monetize YouTube's assets. Launched in May this year the paid channel program is the latest attempt of the company to create a revenue stream beyond advertisements.

Paid channels:

YouTube partner program is the program that enables over a million content creators to earn revenue from their content on YouTube.

On May 9, 2013, YouTube announced a major addition to its YouTube partner program. It introduced a pilot program for paid channels with selected partners. Under paid channels, the content creators can charge a fee from the users who want to access their content. YouTube allowed its initial hand picked partners to charge a subscription fee (starting at $0.99 per month) from its users.

Some of the initial paid channels include: Acorn TV, which offers ad-free British TV programs at $4.99 per month; National Geographic Kids, at $2.99 a month or $30 a year; and PrimeZone Sports, at $2.99 per month.

After the initial success of the program, on October 22, 2013, the company extended this program and allowed most of its partners who have over 10000 existing subscribers to join the program provided that the partner is located in the following countries: Australia, Brazil, Canada, France, Japan, Mexico, South Korea, Spain, the U.K., and the U.S.

The partner also must meet the following eligibility requirements (as mentioned on google.com):

Further, every channel will have to provide a 14-day free trial so that users can get the idea of the content.

By launching this program/service, the company will now give the professional content creators an opportunity to stream their content to their target users in a totally personalized way, as this essentially is a self-service platform. YouTube will provide the content delivery infrastructure and also will act as the link between the partners and the potential subscribers.

As YouTube said in its blog post.

We'll be rolling paid channels out more broadly in the coming weeks as a self-service feature for qualifying partners. And as new channels appear, we'll be making sure you can discover them, just as we've been helping you find and subscribe to all the channels you love across YouTube.

Online video-streaming industry:

The online video-streaming industry is the one of the fastest growing industries. According to the data compiled by comScore: "187 million Americans watched more than 48 billion online content videos in July".

Rising Internet penetration, high data-transfer speed, rapidly growing sales of smartphones and tablets, availability of quality content, anytime on-demand availability are some of the key factors behind this growth.

With about 40 million subscribers, Netflix (NASDAQ:NFLX) is the clear leader in the online streaming industry. Companies like Amazon (NASDAQ:AMZN), Hulu and YouTube (Google) are well known for their online video-streaming services and are competing in the industry. Some other players also operate in the industry. For example, Comcast offers streaming service by the name of Xfinity Streampix; Dish Network (NASDAQ:DISH) is using Blockbuster to enter the streaming business; Intel (NASDAQ:INTC), the semiconductor manufacturer, is trying to enter in a big way.

Conclusion:

With the full launch of this anytime, anywhere, subscription-based video-streaming program, the company is all set to transform YouTube as well as the online video-streaming industry.

YouTube so far is a video sharing site which allows its users to upload their videos to the site and share them with the other site users. After the launch of this program, the site will transform to a content delivery platform rather than a just a content sharing site. From now on, the site will act as a content delivery platform for the professional content creators. The program in a way will allow every serious content creator to compete with Netflix, Hulu, etc. Now, the content creators can just concentrate on the creativity, and the site will take care of all the content delivery related needs. The partners just need to create and upload their content, and the site will make sure that the content gets delivered to the subscriber on anytime, anywhere basis.

Preferred destination for content creators:

With the launch of this program, YouTube will become a preferred destination for professional content creators. This program will provides multiple benefits to the content creators like:

  • Readily available infrastructure and users.
  • Royalty-based revenue stream.
  • Mobile access.

Readily available infrastructure and users:

For any content creator who wants to join the online video-streaming industry, the biggest problems are the lack of delivery infrastructure and users. With the launch of this program, the company provides the solution for the both problems. Now, any serious content creator can use the YouTube's delivery platform to deliver its content to its users on a subscription basis. Moreover, YouTube's one-billion users are larger enough for any quality content creator to get the required subscribers.

Royalty-based revenue stream:

This program will allow the content creators to earn royalty revenue along with the advertisement revenues. Royalty-based revenue stream is preferred by the big content creators, as it normally gives better returns. Moreover, it's up to the content owner to decide how much fee it wants to charge.

Mobile access:

YouTube has a significant mobile presence. Its 40% traffic originates from both phones and tablets.

As mentioned in its Q3 2013 Results - Earnings Call Transcript:

We've also making great progress across devices with Youtube. Almost 40% of Youtube's traffic now comes from mobile, up from 6% two years ago.

This significant presence of YouTube in the mobile segment along with the program will attract much more content creators because the growth of online video-streaming industry almost correlates with the growth in the use of mobile devices, as the mobile devices are the most preferred platform for the on-demand viewing.

Benefits for the company:

For the company this program will bring multiple benefits like:

  • Another revenue stream.
  • Rapid build-up of content

Another revenue stream:

This program will open another revenue stream for the company that is also without any copyright issues because the content owners will have full control over their content.

Rapid build-up of content:

The company is not only trying to monetize its existing assets, but also is trying to build-up the content more rapidly by making YouTube a preferred destination for the content creators (explained above).

Effect on the industry and competitors:

The industry and customers will see the entry of many new players with lots of original and exclusive content. For competitors, the program comes as the worst possible news, as it will immensely increase the competition. The only positive for the competitors is the fact that now Google/YouTube is least expected to come with its own exclusive content in the market. Taking everything into account, the program will make the industry more competitive and the existing players more worried.

All in all, an excellent development for the company and its investors.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.