YouTube’s Coming of Age

Hollywood look out, Silicon Valley is coming.

It’s time for content creators and cable networks to be very scared by what the folks in Silicon Valley are about to do to their business. Content and tech have traditionally worked in tandem to provide end to end solutions for consumers to enjoy all sorts of entertainment. Hollywood makes the shows, and the technology people put them on phones, televisions and the internet. A match made in heaven.

But it was really only a matter of time before Silicon Valley, would find a way to reach into Hollywood’s back pocket, proving that yes, you certainly can have your cake and eat it too. Companies like Netflix which have recently garnered significant acclaim for original content, and YouTube with its fresh production of YouTube Red, have all but signalled their intentions to encroach on the territory of content creation once monopolised by Hollywood titans.

Traditional content creators haven’t done themselves any favours with the dismissive and often evasive attitude they've displayed towards modern technology. In fact, as I, alongside many other writers have noted, Hollywood has for years been tone-deaf to the wirings of modern consumers, persistently sidestepping the internet wave until it was inevitable to be engulfed. With YouTube Red in the frame, content creators are bound to be getting very nervous. Not necessarily for what YouTube is doing now, but for how its new-found maturity spells unprecedented transformation in an industry that has remained stubbornly steadfast for decades.

For anyone who hasn't heard, YouTube Red is YouTube’s new subscription service, which for US 10 dollars a month provides users with access to every YouTube video ad-free, with power features such as background and offline viewing, as well as a tiny collection of YouTube ‘original’ videos locked behind the paywall. As a final incentive, a YouTube Red subscription also grants access to Google’s music streaming service, Google Music.

Remarkably, in the one press conference, Google has positioned itself to shake up both the music and video industries, and more importantly, the business models that behold them. In the process, Google stands to lose not very much, with its incumbent ad model remaining for the vast majority of users, and the subscription service arriving for the power users who so desire it.

Google’s strategy to package both YouTube Red and Google Music is foundationally sound. Streaming music services are hard to differentiate, they provide access to the same music library, with the same prices, with only negligible differences in music curation separating the core functions of the services. For the most part, Spotify owes its persistent dominance of the industry to its first-mover advantage, and nothing else. Spotify, on most measures, is in fact no better than its competitors.

But for Google’s music service, the value proposition is now clearer than it’s ever been: pay the same price as you would on Spotify and get your music streaming fix, as well as unhindered access to the world’s largest video portal, by far. For free.

It makes sense, but perhaps too much sense. Google’s decision to package both YouTube Red and Google Music ultimately sets a ridiculously dangerous precedent to the rest of the industry. If the prerequisite to winning in the music streaming space is free access to hundreds of millions of hours of video then nobody stands a chance. Adding fuel to the fire, the combined YouTube Red and Google Music deal blinds the company from knowing what people are actually paying for. Are people paying ten dollars a month for YouTube Red, or are they paying for Google Music, with YouTube Red simply the final sticker to seal the deal? We’ll never know.

What we do know is that a lot of people are willing to pay 10 dollars a month for ad-free music streaming, there are 20 million on Spotify alone. We know that. However, nowhere on record has it been proven that people are willing to pay 10 dollars a month for ad-free user-generated video content, as is provided by YouTube Red. With these facts in mind, the safest assumption to make is that people will pay ten dollars a month for Google Music’s music streaming capabilities, and just happen to be happy getting YouTube Red for free. Yes, in practice, for a Google music streamer, YouTube Red is free.

Giving stuff away for free - that sounds a lot like the problem the media industry has tried to ward off for years. And here we are, under the guise of a fancy new subscription service, Google appears very keen to be part of the problem and not the solution.

For YouTube content creators, it’s likely not to be a problem. The company has assured that the creators will be compensated for their work, subscription revenue from Red should even improve the payout to many of those creators.

But Red spells trouble for traditional content creators — the cable networks, the production companies and the movie studios. First, Red does nothing to stave away from the perception of the something for nothing economy, in fact it perpetuates it. Content creators who were clinging on to a glimmer of hope that people might warm up to the idea of actually paying for something should wake up from that dream fast, or risk falling asleep, forever. Secondly, Red allows users access to a selection of original content from YouTube’s stars, marking Google’s foray into the business of original content. No, it’s no Game of Thrones or House of Cards. We’re not expecting to see Emmy awards from PewDiePie…yet.

Having said that, there’s no reason YouTube can’t make an enormous splash in the content business, by making real stuff and not just vlogs. Netflix, the poster child of the video streaming business came to its enviable post by mobilising perhaps the greatest corporate pivot of all time — transforming itself from the company that mailed you DVDs in red envelopes to the company that pioneered subscription video and even brings you Orange Is The New Black.

You could even say that YouTube is better placed than Netflix was years ago to become a subscription streaming service. Oh wait, you’d definitely say that — YouTube already is one, we just happen to stream cat videos on it instead of TV shows.

With the revenue generated from the videos that many users upload for free, YouTube is at will to fund original content endeavours without the significant investment and overhead typically associated with piloting TV shows. In effect, user-generated content can finance original content, with the savings potentially able to be passed onto consumers. All the pieces are in place.

Hollywood look out, Silicon Valley is coming.

This isn't the first time that content and tech have been married. In fact, Sony saw the value of it decades ago when they purchased Columbia Pictures to supply the meat for their hardware business. In 2013, I contended that Sony was right in dismissing suggestions to spin off its ailing movie business from its struggling electronics business for the very reason that content and technology are inherently reliant on each other. After all, every picture needs a frame.

I’m fascinated to see how the YouTube Red experiment pans out, now and over the next few years. As a pair, YouTube Red and Google Music are game-changers and are capable of shaking up multiple industries. There are lots of people out there right now who have every right to be absolutely terrified.