Google YouTube Takes On TV, Vimeo With Pay-Per-View

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Google ( GOOG ) this month introduced paid subscriptions for its much-trafficked YouTube video site, a move that could draw more revenue from the lucrative video network.

The new subscriptions allow Google-approved channels to charge 99 cents or more each month for access to videos.

"I think it's an indication that they're serious about monetizing the business, and not just through advertising," said Wedge Partners analyst Martin Pyykkonen. "I think it will take a long time to come to where the advertising on YouTube is today."


Channels are also able to offer discounted annual subscriptions, and those subscriptions can be viewed on PCs, smartphones, tablets and Internet-connected TVs. National Geographic Kids, for example, priced access to its video library at $3.99 per month or a discounted annual $29.99.

Sales from the YouTube subscriptions probably are not going to lead to a boost in Google's revenue right away, but they could in the future, observers say.

Initial Partners

The subscription service is launching with about 50 channels. Those are the initial partners, but Google will open the program up to more YouTube producers within the next few weeks, the company wrote in a May 9 blog post . One of the most frequent requests that Google gets from users who post videos on YouTube is to be able to charge for content, the company says. Up until now, users have been able to partner with Google to run ads before or during their videos.

Google didn't say what its cut will be from each channel subscription, but it probably won't be much. Rival video website Vimeo.com, which is owned byIAC/InterActiveCorp ( IACI ), started a similar pay-to-watch service earlier this year, and says it keeps only about 10% of each sale.

YouTube may be a popular place for users to post videos of their cats and music videos, but it's also increasingly a place where original content is debuting. If video-posters know they can get paid by viewers, the quality will only get better, says Pyykkonen. Eventually, as avid teenage YouTube viewers grow up, the site's content could rival traditional TV viewing, he says.

As of March, YouTube says it has 1 billion unique monthly users. The move to monetize those users with premium content puts YouTube into a potential rivalry with pay-to-watch sites likeNetflix ( NFLX ),Amazon.com ( AMZN ) and Hulu.com.

"If you think about the really, really big picture, it's like the very early days of cable TV," analyst Pyykkonen says.

YouTube and those other sites all are trying to figure out just what types of content they'll run, and how to effectively package it, observers say. Once Google figures out the best way to present and package those shows, YouTube subscriptions could be a material part of Google's business, says Global Equities analyst Trip Chowdhry.

Down The Road

"Right now, from a Google perspective, it won't move the needle," Chowdhry said. "If this project is successful, revenue is probably two, three years down the road."

Now, YouTube advertising likely brings in $3.5 billion to $4 billion in annual sales, according to observers. The company doesn't break out revenue for YouTube.

And Google's YouTube subscription initiative isn't the only part of the company that's getting good buzz.

Perhaps the most visible new product from Google is the widely discussed Google Glass headgear, which has been in development for three years and is only now landing in the hands of a few thousand approved buyers. Glass is a wearable computing device that places a little glass window over one eye. It links wirelessly to the smartphone in your pocket and can take pictures, videos, send emails and surf the Web through voice commands.

If Google can figure out how to get advertising on that right-in-front-of-your-eye product, then it could potentially serve ads to users all day, observers say. But the form that those ads would take are seen as a tricky puzzle.

CEO Larry Page says his company is trying hard to continue innovating because big technology companies often "tend to get compostable doing what they've always done with a few minor tweaks."

R&D Climbing

Despite Google's size, research and development spending is still climbing year-over-year at the company, jumping 27.4% in Q1.

"So a big part of my job is to get people focused on things that are not just incremental," Page told analysts on an earnings conference call April 18.

Another of those new initiatives is Google-made cellphones, including what's being called an "X Phone," Page says.

That could help Google boost sales at Motorola Mobility, the handset maker Google bought in 2012 that so far has proven to be a drag on sales. Google's revenue in Q1 came in lighter than Wall Street expected, in part because of lagging Motorola revenue.

But a new Motorola cellphone that Page describes as shatter-proof could hit the market as early as this year.

"In just under a year, they have accomplished a lot," Page said, "and have impressive velocity and execution."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: AMZN , GOOG , IACI , NFLX

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