YouTube Said to Plan Subscription Channels Within Weeks

Photographer: Kiyoshi Ota/Bloomberg

With subscription services, Google Inc.’s YouTube joins Netflix Inc., Hulu LLC and Amazon.com in offering online entertainment that bypasses traditional cable and satellite pay-television. Close

With subscription services, Google Inc.’s YouTube joins Netflix Inc., Hulu LLC and... Read More

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Photographer: Kiyoshi Ota/Bloomberg

With subscription services, Google Inc.’s YouTube joins Netflix Inc., Hulu LLC and Amazon.com in offering online entertainment that bypasses traditional cable and satellite pay-television.

Google Inc. (GOOG)’s YouTube will offer paid subscription channels over the next few weeks, people with knowledge of the matter said, expanding the choices for television viewers beyond traditional pay-TV packages.

Each channel will cost about $1.99 a month, with some variety in price, said one of the people, who sought anonymity because the plans aren’t public. The platform will help programming partners generate revenue beyond advertising and one-time rentals of movies and TV shows, YouTube said yesterday in an e-mailed statement.

“We’re looking into creating a subscription platform that could bring even more great content to YouTube,” the company wrote, without discussing specifics.

With paid YouTube channels, Google would join Netflix Inc. (NFLX), Hulu LLC and Amazon.com Inc. (AMZN) in offering an online alternative to traditional pay TV. Fees could provide YouTube and its suppliers with a supplement to advertising revenue to help pay for more expensive productions, and broaden options for viewers outside of cable or satellite services.

“Google feels comfortable with its market position and the user for this to be something that they would want to pursue,” said Scott Kessler, an analyst with S&P Capital IQ who rates the stock a buy and doesn’t own it. “Google wants to present a more professional outlet for these folks.”

Google, based in Mountain View, California, added 1.9 percent to $861.55 yesterday in New York. The shares have advanced 22 percent this year.

Market Value

YouTube will generate an estimated $3.6 billion in revenue this year and accounts for as much as $21.3 billion of its parent’s market value, according to a report this month from Barclays analysts. That represents about 7.5 percent of Google’s market capitalization of $285.2 billion based on its closing price yesterday, according to data compiled by Bloomberg.

Google has been stepping up efforts to boost the unit’s revenue beyond advertising. YouTube’s video-rental service includes titles from Viacom Inc. (VIAB)’s Paramount Pictures and Walt Disney Co. (DIS), for a typical price of $3.99.

The company also has built a state-of-the-art production facility near Venice, California, and is spending $100 million on grants to filmmakers and artists ranging from few hundred thousand to a few million dollars.

While those outlays are significant, YouTube’s most popular fare is typified by the young-adult goofing of channels like “Smosh” and comedian Ryan Higa. By contrast, Netflix and Amazon have been bidding up traditional television content such as “Breaking Bad” and “Downton Abbey,” while expanding into original programming with shows such as “Orange Is the New Black,” produced by Lions Gate Entertainment Corp. (LGF)

Strategic Impact

Subscription channels may help make YouTube a more exclusive destination for viewing online video, though they aren’t likely to have a big financial impact, said Kessler.

“This is more about strategically positioning Google and YouTube,” Kessler said.

Subscriptions may also provide YouTube a better path to generating revenue outside the U.S., where it can be more difficult to boost ad sales, according to Brian Wieser, analyst at Pivotal Research in New York.

“In a market like India or Indonesia, the costs to deliver content may be just as high as they are in the United States,” Wieser said. “But the opportunity to generate revenue is far, far lower, if you’re solely dependent on advertising.”

The Financial Times reported yesterday on YouTube’s plans.

To contact the reporters on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net; Andy Fixmer in Los Angeles at afixmer@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Tom Giles at tgiles5@bloomberg.net

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