How Well Is YouTube Red Really Doing?
When YouTube Red launched in YouTube’s main market of the US back in October 28th, 2015 there was a lot of excitement mingled in with anticipation. This emanated from the media, analysts, professional YouTubers and way down the line, from the YouTube channel audiences. The media and analysts were excited because the world’s largest video platform, which for its first decade had run on an AVOD (Advertising supported Video On Demand) model, was now looking to upsell a premium SVOD (Subscription Video On Demand) model to its broad viewing audience. A recent six country consumer survey fielded by MIDiA Research shows that 66% of all consumers watch videos at least once a month on the site and that only in the 50+ demographic cohort was monthly YouTube viewing a niche consumer activity (ie under 50% of consumers engaging in this activity.) Clearly, of all the AVOD services out there, YouTube is the greatest opportunity for successful conversions of freemium viewers into paying premium subscribers based upon its vast and broad consumer engagement metrics. The premium proposition for YouTube Red played safe combining the two most widespread forms of VOD monetization: ad free and original programming. Although originally an iteration of YouTube’s earlier Music Key subscription service, its re-launch last year positioned it heavily towards the native content creators which account for 48% of the fastest growing channels on YouTube (the biggest category - see The State Of The YouTube Nation Report for more details.)
As such a significant portion of the marketing was aimed at enticing social talent audiences to subscribe to exclusive content from the likes of PewDiePie (43 million freemium YouTube subscribers) whom were going to be made on a studio basis with established TV story telling teams – YouTube’s original zombie flick ‘Scare PewDiePie’ was made with the production team behind AMC’s The Walking Dead.
Due to rights clearance issues (mainly with music) YouTube Red has only expanded beyond the US to Australia and New Zealand, and this week’s bizarre reports of chromecasts being offered to YouTube Red subscribers suggests YouTube Red is struggling to get up to speed.
The Size Of The Market Opportunity
According to MIDiA Research’s recent consumer survey, 12% of US consumers would be willing to pay to view exclusive YouTube videos from their favourite show or stars. In Australia, 5% of consumers would pay for the same access. Across the six countries surveyed, 11% stated that they would pay for this type of service. The choice of the US and Australia then as two of the three current markets for the YouTube Red suggests that Google owned platform is going to experience widely differing subscription conversion from its user base.
YouTube are notoriously coy about putting out key performance figures for their services. However the YouTube App (with YouTube Red being the only in-app purchase) in February was the 22nd highest grossing app in Apple’s App Store - way behind Netflix and Hulu and only just above HBO Now. Our analysis suggests that its subscriber level is currently around the 2 million mark. With 161 million freemium subscribers in the US, this represents a conversion rate of 1.24%, above the default levels for online monetization of digital audiences but only monetizing 10.3% of consumers who have expressed and interest in exclusive YouTube content.
SVOD Versus AVOD
In many ways YouTube Red is a classic example of online video’s monetization challenge. Platform owners know that if they charge for access to video content then they will have greatly reduced audiences, where as the AVOD model allows them to get the audience share but at greatly reduced monetary value. Because of this YouTube set the limited goal of driving 5-10% in revenue growth in addition to ad-supported revenues for content creators participating in YouTube Red, which has reportedly been achieved.
However if YouTube Red is to become a standout success for the creator community, then it has to start reaching the 89.7% of interested consumers who are not currently subscribing to the premium service.