Why YouTube Premium Fails

Larry Liang
Jul 3, 2019 · 8 min read
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It’s 2019, and it seems like everyone and their mother is trying to get into the subscription-based streaming market. The current major players, Netflix, Hulu, and HBO, are getting ready to face the onslaught of new offerings from Disney, ABC, Amazon, Apple, and others. Yet one company that seemed poised to easily move into subscription-based streaming has tried and failed for several years now: YouTube.

The first iteration of YouTube’s premium service debuted in 2015 with YouTube Red. Since then it has undergone a rebranding, renamed simply to YouTube Premium (YTP for brevity) in 2018. At the end of 2016, it had only accrued 1.5 million subscribers (current subscriber levels are unknown.)

Compare this with Netflix, which grew from about 80 million subscribers at the end of 2016, to over 120 million at the end of 2018. The market has clearly grown rapidly, yet YTP remains a minor player. So where did YTP go wrong? Why has it failed to convert YouTube’s enormous cache of 1.5 billion monthly active users into fully paid monthly subscribers?

The YouTube Value Proposition

If there’s one company that’s revolutionized the way humans have consumed video content, it’s YouTube. Founded in 2005, it was initially an intimate video sharing website, where users could post unstructured content mostly for their friends and family. 14 years later, YouTube has become a huge subsection of the entertainment industry in its own right, earning parent company Google billions of dollars in ad revenue annually. Being a YouTube personality has become a full-time profession, and accruing a dedicated viewer base can be done by anyone with a video-creation tool, a personality, and a bit of luck.

YouTube was so revolutionary because it democratized the distribution of video content: creators post for free, and viewers watch for free. In the early days, network effects quickly cemented YouTube’s dominance as the premier platform in both quantity and quality of content. The first famous YouTubers, like NigaHiga, Fred, and Shane Dawson, built their audiences with a widely appealing genre: comedy. But as YouTube audiences grew, creators in the most niche of genres and topics discovered that even they could find viewers that would eagerly consume their content.

YouTube’s value proposition to viewers was and continues to be free access to literally millions of hours of video on a colossal variety of topics, in different formats and lengths, aided by a sophisticated algorithm that recommends an endless queue of new videos tailored specifically to the viewer’s tastes.

If you’re thinking that YTP may be inconsistent with this value proposition, you are right. But first, let’s take a brief look at the original subscription-based streaming service: Netflix.

Netflix: Pivoting to Adapt

In its early days, Netflix was a mail-only CD rental service akin to Blockbuster, allowing subscribers easy access to a diverse library of third-party content. This way of distributing entertainment was already fairly innovative for its time; Netflix cut costs by eschewing physical stores, and customers loved the convenience of having their rentals delivered right to their mailbox. Netflix then made the move to bring its content online as a streaming service, predicting correctly that the internet would be the ultra-efficient and convenient channel of distribution for its entertainment properties.

Once the pivot to fully-online content consumption was complete, and the mail-service was discontinued, Netflix had built a streaming empire… off of other people’s stuff. The second correct prediction they made was foreseeing the need to create original content to survive. Before the creation of Netflix Originals, they were at the mercy of third-party content providers who could pull their offerings at any time or extort them for outrageous licensing fees. Furthermore, Netflix Originals was a brilliant way to keep an audience captivated with new and exciting content that would justify the monthly fee after users had exhausted older material.

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Thus, Netflix’s current value proposition is this: for a small monthly fee, have ad-free, unlimited, and offline access to a variety of premium long-form content, some of which is exclusive to our platform. Share your plan with family members and friends, and binge for as long as you want.

These two transformations, one of distribution method and one of vertical integration, ended up forming the basis of an extremely effective business model that has allowed Netflix to sustain huge growth. It’s no wonder why everyone else is rushing to copy them, and it remains to be seen if Netflix will survive the loss of third-party content from its libraries as legacy entertainment companies make their content exclusive to their own platforms. So why does YTP fail while Netflix thrives?

YouTube Premium: Caught in the Middle

In comparing value propositions of YouTube and Netflix, we see some pretty clear similarities. Both claim to offer access to a wide range of content, and both leverage the power of the internet for efficient and convenient distribution. But beyond that, they fundamentally serve different purposes. Netflix is a premium service that caters to premium tastes: none of the content on offer is typically available for free. YouTube, on the other hand, is meant to be a democratized platform with free access for both creators and viewers. The bulk of its content was created by people with a phone and internet access, and even its more sophisticated creators have minimal resources and training compared to their Netflix production counterparts. Similarly, the UX is meant to be less premium, with ads that play at the beginning, middle, and end of monetized videos.

With YTP, YouTube seeks to encroach on the premium aspect of Netflix. From YTP’s website, I gathered that YTP’s value proposition was to provide a premium version of the YouTube experience, with no ads, access to exclusive content (including music), and other small UX improvements like offline video. Theoretically, YTP subscribers would benefit from a cleaner YouTube experience and enjoy cool new shows and music.

But it is exactly in trying to have the best of both worlds where YTP fails to make impact. We see this most readily in its lackluster content proposition, which has manifested in a couple of ways.

  1. Niche Creators

Firstly, to capitalize on the existing subscriber bases of its popular channels, they asked the personalities of those channels to create some of the first content of their new service. However, this content was ultimately not compelling for two reasons: first, these creators were too niche, even if they had millions of subscribers, and second, they did not have the kind of background or resources to create high quality, premium streaming content.

I think of shows like Joey Graceffa’s “Escape the Night,” which was heavily marketed to me as flagship YTP content. Having watched the first episode, I can confidently say that the production and writing quality was just not on par with that of Orange is the New Black. Additionally, the series clearly relies on niche star power as its big draw, starring the who’s who of the “funny vloggers” YouTube community. Combined with a basic murder mystery plot, it didn’t have the kind of broad appeal of a high-intrigue political drama like House of Cards.

2. Lack of Buzz and Cultural Buy-in

Secondly, they failed to have an effective strategy to generate the same kind of buzz and buy-in for their content as for Netflix’s original content. While one could argue that this was a marketing failure, I would point to Netflix’s starting position as the reason why it succeeded in using exclusive content as justification for a premium price tag.

All Netflix had to do was convince a few curious subscribers out of their millions of existing subscribers to give these Originals a chance. Once they were hooked, and the buzz started to build, the Originals were seen as bonus reasons to tell their friends to get a Netflix subscription because oh my god we NEED to talk about that new season. This sort of viral buzz made users feel more buy-in towards their subscriptions and the cool content it provided, and it made new users easier to recruit because the buzz justified that premium price tag. Nowadays, after proving themselves many times over with critically-acclaimed offerings, the exclusive content has become as big of, if not bigger, a draw as the third-party content.

Meanwhile, YTP started from a more difficult position of convincing free users to become paying users. Not only is the quality bar much higher, the lack of existing users made it even more difficult to generate buzz. Releasing free episodes didn’t work, because once that paywall went up, users perceived that they were paying 12 dollars just to finish the season — why not just click away to another free video instead, there’s whole column of them on the right! There was no cultural buy-in and there was no viral buzz that could fully justify YTP’s price tag. Additionally, YTP lacked the base that Netflix had in pre-existing premium third-party content — it would be like if Netflix had offered free access to its third-party content and then attempted to introduce Originals for a premium.

In fact, because of the inherent association with YouTube’s free access videos, I would argue that the effort it would take to have their content attain premium status is nigh impossible. This is because YTP contains fundamental contradictions with its parent service. YouTube is designed to be easily consumable, budget fun. People come to YouTube not for Emmy-level acting, but for easy laughs or quickly digestible information or the work of their favorite relatable creators. YouTube is fundamentally not premium, and attempting to create a sub-brand that is meant to be premium leads to a muddled brand message, and ultimately, users who will not pay for that subscription.

A Clean Divorce

So how can YouTube capitalize on its huge user base for premium streaming in a way that actually makes sense to its value proposition? I’d like to reframe the question and instead look at it from the perspective of Google. Its biggest competitors are vying for relevancy in what will likely be the replacement of television. How can they leverage the existing infrastructure and market penetration of YouTube to create a sustainable, premium, subscription-based streaming platform?

I would argue that the YTP brand needs to be rebooted once again, but this time, as a streaming service unto itself, away from the auspices of YouTube. This could materialize as a completely new brand with its own snappy name, or as an integration with Google Play Store akin to how Amazon launched its streaming service as a part of Amazon Prime. This frees the new service from the obligation to cater towards the interests of YouTube, which is a platform where premium content cannot exist in a way that truly appeals to a cross-section of users.

Fortunately, they can still incorporate all of the good parts of YouTube, including its expertise on how to build a clean streaming UX and its existing technical infrastructure that can easily be repurposed for a new platform. What’s left is to create or license enough high-quality content that is broadly appealing to even begin to justify the price tag — though if any company has the resources to do so, it would be Google.

The Startup

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Larry Liang

Written by

Harvard ’20. Interested in the ways society interfaces with technology and media.

The Startup

Medium's largest active publication, followed by +719K people. Follow to join our community.

Larry Liang

Written by

Harvard ’20. Interested in the ways society interfaces with technology and media.

The Startup

Medium's largest active publication, followed by +719K people. Follow to join our community.

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