Will the industry see red over YouTube's latest offering?

Last month saw the introduction of YouTube Red, a $9.99 monthly subscription service that allows users to watch videos offline, play videos in the background, access exclusive content from YouTube’s most prolific creators, and – perhaps most importantly – watch videos without interruptions from advertisements.
YouTube Red’s concept of premium content that’s only available to paying subscribers emulates the model pioneered by Vessel and other start-ups. This additional layer of exclusivity is clearly a defensive move on YouTube’s part to reward its top creators, and prevent them from migrating to other platforms. Facebook’s rumoured plans to court top creators will have certainly influenced the decision.
Across the video industry we’re now seeing platforms provide viewers the choice of a paid, ad-free model and a free, ad-supported model. Hulu has just introduced a new ad-free plan, and Netflix is rumoured to be experimenting with ads. YouTube’s announcement of YouTube Red is just another example of this broader trend towards consumer choice between free and paid-for plans.
YouTube has experimented several times with paid-for models, including subscriptions on a channel level and an ad-free music subscription plan. To date, none of the trials have gained much traction, nor did they presumably make a dent in YouTube’s overall business, and it remains to be seen how significant the impact of YouTube Red will be. It is, however, more attractively priced than previous attempts, and it’s possible that YouTube could succeed with this new plan. The real challenge will be convincing people to pay for a service that has historically been free.
From an advertising perspective, the news won’t likely have a significant influence on ad inventory availability or overall user behaviour. When you look at the size of paid-for video sources like Hulu which offer premium content, they are still tiny in comparison to free video sites – Hulu has 9 million paying subscribers while YouTube has over a billion users.
YouTube’s biggest content creator, PewDiePie, heralds the new service as a direct effort to counter ad blockers, which he says can have a detrimental impact on the income of content creators. With up to 40% of his viewers utilising ad blocking technology, he is one of the YouTube stars who has signed up to create exclusive content for subscribers. Ad blocking is one of the largest issues facing the online publishing industry and YouTube is no different, with the introduction of YouTube Red, users can now choose which experience they receive.
Unsurprisingly, some in the creator community are outraged as exact details are yet to be confirmed. Every major change on the YouTube platform – including redesigns, and the merging of comments with Google+ – has provoked similar reactions. History has shown that the community usually adapts quite quickly to the new rules. In this case though, the changes are more significant because creators fear that income from their channels might be affected. It remains to be seen what the financial impact of the change will be.
We will likely see YouTube Red have the greatest impact on music consumption. The subscription model turns Google into a serious competitor in the streaming music space. The combination of YouTube Red and Google Play Music at $9.99 is an attractive offer compared to a similarly priced music service such as Spotify. From an ad perspective, it’s possible that we’ll see a reduction in the amount of music-related ad inventory available.
For now, YouTube Red is only available in the US with no further details on plans to roll out internationally. The new subscription offering will have two key opportunities to positively impact YouTube’s position in the market – it allows viewers to choose their preferred user experience, and it positively impacts the income of the top creators who are so essential to YouTube’s success. It will remain to be seen whether this new model will prevent an exodus of talent to competing video platforms such as Facebook.
This post previously appeared on November 18, 2015, on The Warc Blog.