What Happens When The Price Of Free Goes Up? YouTube Is About To Find Out

Oct 21, 2015
Originally published on December 22, 2015 11:32 am

Updated at 6:02 p.m. ET with analysts' comments and additional details

The rumor that YouTube would once and for all put some of its endless content behind the paywall has perpetuated for quite a while, and finally the plan is the real deal.

Google, YouTube's parent, on Wednesday revealed the new subscription service, ambiguously called "Red," which will give people a way to watch videos without those buzzkill commercials — for $9.99 a month.

Engadget offers a quick rundown of YouTube Red's main attractions:

"[M]ost importantly, YouTube Red gives you ad-free playback and the ability to save anything you want to a device for offline viewing. YouTube Red will also encompass what was formerly called YouTube Music Key — it's now known as YouTube Music [--] will have its own dedicated app, and includes a full subscription to Google Play Music. ... If you're already a Google Play Music [subscriber], you'll also get a subscription to YouTube Red.

"Beyond music, YouTube Red also works with the recently launched YouTube Gaming service as well as Google's new YouTube Kids section."

Red is slightly pricier than the $7.99-per-month price tag of regular Hulu Plus and basic Netflix, as well as Amazon Prime, which gives access to video and music (and free shipping of actual things) for $99 a year, which works out to $8.25 per month.

But Hulu's own ad-free service costs $11.99 a month. Netflix charges new subscribers $9.99 monthly for its "Standard" offer that includes HD video and concurrent streaming on two screens, and $11.99 for "Premium" service that includes ultra-HD and four-screen watching.

On the audio side, Pandora has a free music streaming service, but ad-free Pandora One costs $4.99 a month. Its rival Spotify has the free version and the $9.99-per-month ad-free premium version with downloads for offline listening.

YouTube Music is expected to focus on music videos, with lots of room for discovery of new artists, remixes and covers. The launch date for that dedicated app is unknown, but Red broadly launches later this month and the new original content, ranging from short videos to full-length feature films, is expected next year.

Variety has a handy rundown of 10 original series that Red plans to debut next year. The shows are a mix of scripted and reality TV and involve some of the site's most popular creators, including a horror mystery series with PewDiePie (aka Felix Kjellberg) and a documentary about Superwoman (aka Lilly Singh).

In its anatomy of Red's making, The Verge argues that the new subscription service could mark a dramatic turn in YouTube's business:

"With Red, YouTube is signaling a definitive shift from an ad-funded video-hosting service to a media company that will eventually go head to head with Hulu and Netflix. YouTube has the potential to dominate the industry: if just 5 percent of its US viewers were to sign up for the service, it would add more than a billion dollars in annual revenue to the company's bottom line."

Google has tried twice before to get people to pay for video content and failed. There are also concerns that YouTube artists may not do as well financially under the subscription model.

And fundamentally the question is whether YouTube, after rising 10 years ago as a scrappy self-broadcast platform, will be able to sell its users something they've been used to getting at no cost.

"Once you offer something for free, it's really hard to get people to pay for it," says technology analyst Rob Enderle. "You can always take prices down, but it's really hard to take them up."

Rich Greenfield, an analyst at BTIG, says consumers are getting used to paying to avoid ads, and YouTube's sheer size gives it flexibility: "If 1 or 2 percent of the world's YouTube monthly user population pays, that would be what, 14 to 28 million paying subscribers? That would be a pretty tremendous subscription business."

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YouTube is launching an ad-free subscription service. Content from some of its most popular stars will be locked behind a pay wall. It's not the first time YouTube has tried to get its customers to pay. And as NPR's Laura Sydell reports, the same question remains. Will people pay for something they're used to getting for free?

LAURA SYDELL, BYLINE: Among the starts that YouTube trotted out to announce its new service...


FELIX KJELLBERG: How's it going? My name is PewDiePie.

SYDELL: ...PewDiePie - real name - Felix Kjellberg. He's one of YouTube's most popular personalities. He's got nearly 40 million subscribers to his YouTube channel, and mostly, they watch him play video games and make funny comments. Now those who are willing to shell out nine-ninety-nine a month, or 12.99 for iPhone users, can gain access to him without watching ads. And they get to see special projects, like an upcoming film in which PewDiePie puts himself in supposedly terrifying real-life situations inspired by video games.


KJELLBERG: I signed up for this, so I'm OK. But really, I'm not OK. I need help.

SYDELL: Susanne Daniels, YouTube's vice president of original content, is not scared about making YouTube fans pay.

SUSANNE DANIELS: I think we have an amazing opportunity to take starts who have risen up democratically on YouTube and give them a new, bigger, bolder platform to entertain their fans.

SYDELL: As part of the package of what's being called YouTube Red, there will be a seperate app that includes music from YouTube and Google Play. Though right after the announcement of the pay-for service, Twitter lit up with angry YouTube users, including a petition to stop YouTube Red because it will divide fans between haves and have-nots. Analyst Rob Enderle says it's going to be hard to get people to pay for YouTube, a site that started with homemade videos and the tagline broadcast yourself.

ROB ENDERLE: Once you've established a position that basically you can get anything you want for free from a company, now trying to get people to pay for it - they'll scratch their head and figure, why should I; it's always been free before.

SYDELL: Google, which owns YouTube, has tried twice before to get people to pay for video content and failed. There's also concerns that YouTube artists may not do as well financially under the subscription model. But Rich Greenfield, an analyst with BTIG, thinks consumers are getting used to the idea of having a service where you pay for ad-free. Think Spotify, Pandora, Hulu.

RICH GREENFIELD: If 1 or 2 percent of the world's YouTube monthly user population pays, that would be - what? - 14 to 28 million paying subscribers? That would be a pretty tremendous subscription business.

SYDELL: Though oddly enough, YouTube says among its 10 most popular videos over the last year, four were advertisements. Go figure. Laura Sydell, NPR News. Transcript provided by NPR, Copyright NPR.