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Can Google Successfully Crack the Subscription Model?

by Brice Longnos | Jul 02, 2018

Google recently rolled out YouTube Premium, a subscription service designed to replace YouTube Red, a subscription video service launched in October 2015. The new product includes features already familiar to YouTube Red subscribers.

  • Ad-free video streaming;
  • Video plays in the background;
  • Video downloads for offline viewing;
  • Access to all YouTube Originals.

In addition, YouTube Premium provides full access to music content through YouTube Music, which allows subscribers to listen to music without ads, play music in the background, and download songs/playlists for offline listening. The cost of YouTube Premium is $11.99 per month but users have the option of just subscribing to YouTube Music Premium for $9.99 per month.

 

YouTube Music Premium

YouTube Premium

YouTube Red

Music

 

 

 

Ad Free Music

X

X

 

Listen in Background

X

X

 

Download

X

X

 

 

 

 

 

Video

 

 

 

Ad Free Video

 

X

X

Play in Background

 

X

X

Download

 

X

X

Access to YouTube Originals

 

X

X

 

Why does Google want a subscription service?

With YouTube Premium, Google hopes to embrace the growing revenue opportunity for subscription business models in both video and music streaming.

  • Strategy Analytics forecasts music subscriptions to grow by +179% between 2017 and 2022. Subscriptions already account for 43% of Spotify’s user base as of Q1 2018, and 64% of all net adds in 2017.
  • Strategy Analytics forecasts OTT video subscription revenues to grow at a CAGR of +13.4% between 2017 and 2022, rising from $25.56 Billion to $54.23B globally. Beyond Netflix which is seeing accelerated growth of its international subscriptions (+57.3% YoY for Q1 2018), those are also picking up everywhere, even in emerging markets with low willingness to pay like India.

In addition, Google wants to avoid the pressure ad-blockers are putting on its digital advertising revenues. Strategy Analytics estimated the impact of ad-blocking to $41.4 million globally in 2016. After launching its own ad-blocker on Chrome last February, going after a subscription revenue model is another way for Google to address the issue. All the more as YouTube channels eligible for monetization were reduced since January, and the removal of unskippable 30-second ads on YouTube are narrowing video ad revenue channels.

 

Google has failed in previous efforts to capture subscription revenue

Google’s previous attempts at converting users into subscribers haven’t really paid off.

  • YouTube Red only drove 1.5 million subscriptions after two years;
  • Music-only streaming service Google Play Music barely had more than the double in July 2017, despite launching back in 2011;
  • Those two cumulated had just 7 million paid subscribers in July 2017.

There has been a lack of clarity for how Google positioned YouTube Red, was it a music service or a video service? While YouTube’s head of global content, Susanne Daniels claimed in 2016 ambitions in the video space to challenge Netflix and Hulu, CEO Susan Wojcicki called it a “music service,” earlier this year.

 

Will this new attempt with YouTube Premium and YouTube Music be more successful?

Google is getting back at it, addressing both music and video subscription under a different brand name, but this time providing consumers with a separate tier for video, at a premium.

So far, neither music nor video streamers have succeeded on both fronts. Spotify has repetitively failed: cancelled its short-form series last January, tried something around podcasts (Spotlights), and is stubbornly pursuing video projects, it seems, with the hire of a TV veteran as its CCO. Meanwhile, Apple has been investing over $1 Billion in over 20 long-form series, without specifying whether Apple Music will be host to that programming.

But YouTube could be the one to crack it eventually, convincing some of its 1.8 Billion monthly logged in users, leveraging on the time spent by its users listening music – making up for 46% of the market according to IFPI.  While what YouTube Premium is offering is not new, such as a desktop player or recommendations based on listening history, Google’s leadership in search, AI and low-latency delivery of video would provide for a top-notch multiscreen consumer experience. Context-based recommendation and offline listening and viewing will most certainly help for the quality of experience, but will they really matter to consumers? Probably not enough for those who already have their playlists all set on Spotify, Apple Music and others, nor those that have already embraced the Hulu + Spotify combo for $12.99 per month. But it could for those that do not subscribe to any service yet, including in markets where YouTube Premium will face less competition from global players, such as Russia and South Korea.

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