Netflix and Hulu have nothing to fear from YouTube’s paid channel plans

With much fanfare last month, YouTube introduced the launch of paid, premium channels. YouTube identified about 30 of its partners and also announced that other producers would soon be able to set up their own paid channels – from obscure, niche start-up programming, such as “Cars.TV,” to marquee programming by the creators of “Sesame Street.” Subscribers can now pay anywhere from 99 cents to $7.99 in monthly subscription fees to  watch paywalled shows on YouTube – you know, the home of “Charlie Bit My Finger” and the Dramatic Chipmunk. YouTube is banking that this long-anticipated move will finally prove to be the proverbial brass ring that fully realizes the revenue potential of the site, allowing both high-traffic and lower-traffic -but-premium brands to coexist on the site. This will preserve YouTube’s “star system” – where some users have risen to fame and fortune on the strength of YouTube’s more than one billion viewers worldwide – while theoretically providing new channels of revenue generation for YouTube and its partners. At least that’s what YouTube hopes.

Transitioning from free to pay

So why shouldn’t this work? After all, the move into internet television – or streaming broadcast – seems to have worked out for Hulu and Netflix just fine. I’d say the problem is that those companies aren’t the right comparison. YouTube should instead be studying the example of print publishers, who have to-date struggled and largely failed to transition from longstanding free models to hybrid paid subscription/advertising models. It’s a potentially massive roadblock for YouTube’s plan. How do you get audiences to start paying for the same product that you’ve always given them for free? The decision to allow free access not only went a long way toward effectively killing newspaper subscriptions for the hard copy product, but more than that, also gave newspaper and magazine readers an attitude of entitlement when it came to online content. The entire industry trained readers to expect their product to be free, and so attempting to reverse course is understandably proving difficult. Newspapers have since tried every permutation of bundling free apps and print subscriptions with their online subscriptions, and those efforts have met with largely lukewarm levels of success. So the big question is whether it will be simply too late for YouTube as well.

Little advantage for existing brands

Also dogging YouTube’s paid offering so far is the lack of much in the way of big-name paid-programming. For example, Comcast – the owner of NBC Universal – has yet to sign on for YouTube’s latest venture at all. And while YouTube is wildly popular, content providers are generally not happy with the cut Google takes of revenue, which can be as much as 45 percent. Those same providers are also not thrilled with the obstacles to branding that YouTube imposes, such as claiming rights to its content. And even if you’re one of the lucky few that maintains a popular and established channel, it’s questionable whether YouTube offers the best platform for controlling your content, audience or brand. After all, as the middleman Google has complete control over the relationship with the viewer. As an instructive example of the ineffectiveness of branding on YouTube, just look at the number of  videos that try to explain and teach smaller content creators and advertisers how to use YouTube itself. Even these how-to-brand-on-YouTube videos get lost among themselves in a kind of meta-vortex, their only distinguishing factor being view counts. In short, even videos about branding on YouTube have a problem branding themselves! When it comes to video, YouTube faces much of the same problem that Facebook does for everything else: Just because you are fabulously popular with the public as a free site doesn’t mean you’ll be a slam-dunk source of lead generation, content monetization, or other potential revenue for brands.

Stiff competition for web entertainment dollars

YouTube – heck, even the whole of the internet itself – has thrived in an era where cheap, easy and disposable content has ruled: In the land of Jenna Marbles and MysteryGuitarMan, the free and transient are king. Now that the collective web has unearthed some of these oddities, YouTube is hoping that you’ll actually start paying to watch them. As more serious content creators get more serious about the web as the prime medium of engagement, these stars will have to survive in a new market of truly premium competition for the “web entertainment dollar.” To put it bluntly, the same video that may have once seemed like a great way to waste a minute is not necessarily the same one a viewer would pay a few dollars for. If you’re a company that wants to tightly control your brand, its assets, and the revenue you generate, can you really afford to be YouTube’s Dramatic Guinea Pig? Sean Barger is CEO of Equilibrium, a developer of automated media productions.  Have an idea for a post you’d like to contribute to GigaOm? Click here for our guidelines and contact info.