Can Google's Recently Launched YouTube Red Take On Netflix?

  • YouTube Red is a disruptive product created to take on Netfix and Spotify.
  • Rising Netflix and Spotify subscribers shows that there is certainly a market for YouTube Red.
  • Google/Alphabet has everything in place to ensure that YouTube Red is a roaring success.

Alphabet Launches YouTube Red

Alphabet Inc-C (NASDAQ:GOOG) recently released YouTube Red in the United States, and has plans to roll it out globally. YouTube Red is a disruptive streaming offering and combines the following into a neat package:

1) An ad-free YouTube experience- YouTube Red subscribers won't see a single ad while on YouTube.

2) Access to 30 million+ songs through Google Music.

3) Exclusive content from top YouTubers.

All of this will cost YouTube Red subscribers just $9.99 per month. This is the same price as a monthly Netflix (NASDAQ:NFLX) or Spotify subscription. The fact that Google waited this long to release YouTube Red is incredibly surprising.

With Netflix and Spotify growing their subscribers and revenue on a stratospheric rate year-upon-year, one would think that Google would have stepped into this industry earlier. Additionally, due to Google's vast user base and the leverage which YouTube affords them, they will be able to roll out the service at a stratospheric rate.

Secondly, Google is a data-driven company, and they have access to a wealth of information with regard to the types of video and audio content people like to listen to. As a result, it won't be silly to think that Google will use this when creating original content in the future.

In order to appreciate how significant YouTube Red could be for Google, it is worth analyzing the current state of the paid streaming industry.

YouTube Red And The Competition

Netflix is the biggest company with regard to streaming tv shows and movies. The company has approximately 69 million users, and a majority (40 million) are in the United States. As a result, there is significant room for growth internationally. However, a bottleneck is broadband availability and speed. It is worth noting that access is increasing at a steady pace. Google will be hoping to quell the growth of Netflix.

Some of Netflix' greatest strengths lie in the fact that they create their own original content. In fact, Netflix gained 34 Emmy nominations in 2015. Creating addictive original content is key to their strategy as it plays a pivotal role in customer retention.

With regard to financial performance, revenue has bloated at a compounded annual rate of 22.1% over the last 3 years. Secondly, Netflix stock has outperformed the Nasdaq over the last 3 years.

Another one of Google's competitors is Spotify. The Swedish music streaming brand has managed to be the service on every millennials' lips. Spotify has 20 million subscribers and continues to grow this number at a steady rate. Annual revenue stands at more than a billion dollars, and one wonders how equipped the company is against competition.

Dealing With High Costs

Moreover, due to the high cost of paying record labels in order to gain access to their roster, Spotify's costs dwarf revenue. As a result, the company needs to find extra monetization opportunities or risk going out of business. The current model is simply unsustainable.

Quite simply, the streaming industry is an incredibly expensive business to be in, plus due to increased competition marketing costs can be incredibly high. And this is precisely why Google's YouTube Red service will thrive. YouTube is simply the TV of the internet, and with more than a billion users, they have more than a third of the entire internet surfing public. Additionally, when it comes to content creation, they have access to some of the most influential stars on the planet. One expects that YouTube is likely to pay invited YouTubers a higher rate per 1000 views in order to entice them to create exclusive content for YouTube Red.

The audience is there, there is no problem with regard to acquiring exclusive content, plus YouTube Red has arguably the world's biggest advertising machine behind it.

Conclusion

In conclusion, YouTube Red can add significant revenue to the company's bottomline. The revenue streams could extend to brands offering money for paid product placements. The big question with regard to YouTube Red is: why didn't they launch it sooner?

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