December 4, 2018

Why YouTube Failed in the Originals Space

YouTube made headlines this past week by announcing that it will make its original programming free to its two billion monthly users, abandoning the three-year-old YouTube Red/Premium paywall.

This change represents a significant shift in strategy for the Google-owned video giant. While YouTube has never divulged the number of subscribers, early reports suggested that YouTube Red was slow to catch on with viewers. The lack of traction around its original programming, coupled with the heavy dependence upon advertiser revenue in its core business, makes this a logical move.

The YouTube Brand is a Double-Edged Sword
YouTube, which launched back in 2005, has experienced staggering growth over its history. It has strong global reach and the receives over 30 million daily visitors, who watch almost five billion videos every single day. But YouTube’s ubiquitous brand is also strongly associated with it being a destination for free, short-form video, an established legacy that made it challenging for it to pivot to a premium/paid player in the originals space.

Over time, stronger higher-profile programming could have changed this brand perception. Two years ago, YouTube expressed such an intention, about going “all in on original content” so it could quickly evolve Red as a premium programming destination. At least, that was its public positioning.

Lack of Traction the Result of Soft Support
In reality, and despite hiring Susanne Daniels, a veteran of the WB Network and MTV, as YouTube’s content head, its original shows failed to garner positive reviews and, more importantly, gain traction with consumers. (The single standout was the Karate Kid reboot Cobra Kai.) In other words, Google didn’t spend enough money to create truly compelling YouTube originals, and the service suffered the consequences.  According to Digiday, multiple executives with high performing channels on YouTube revealed that their subscription revenue was scant compared to their advertising revenue.  One executive, cited that subscription revenue was just 7 percent of the total and that if they included sponsorship revenue it was less than a percent.

While Google has the resources to compete in almost any market space, YouTube’s annual originals budget was in the hundreds of millions range, a token compared with the billions spent by the major players. Google’s unwillingness to make larger investments over the long term meant that executives could not afford to make big bets on the type of content that could have had a real impact, thus YouTube Red/Premium was easily overshadowed by Netflix, Hulu, and Amazon.

YouTube’s exclusive talent also proved, on occasion, a risky bet. One high-profile misstep was PewDiePie’s show, which was cancelled after the popular vlogger posted anti-Semitic content to his free channel.

Ultimately, the company realized that its originals were better monetized via a free, ad-supported network supported by big advertisers. Subscription revenue takes time to build, even with strong programming, and YouTube was not willing to put in the money or the time to grow an audience. Display advertising won out over more substantial investments.

Conclusion
With Netflix, HBO, Hulu, and Amazon chalking up successes with their original programming, Google entered the space hoping to evolve its own platform, better monetize YouTube’s user base, and shake up the premium video market.

What Google learned is that developing programming — for which a sizable audience is willing to pay — is no easy feat.  With YouTube already established as a destination for free content, it came to realize that changing consumer behavior to a subscription model was harder than they anticipated and that playing to its strength (which is attracting and monetizing via ad support and sponsorships) was the best path forward. Others are definitely taking note of this shift and closely watching to see if YouTube can turn a buck via an ad-supported model.

 

Brad Schlachter is a Senior Advisor for TDG and a highly accomplished digital marketer and advisor for leading entertainment and technology focused organizations. Prior to TDG, Brad served as the marketing lead for Motor Trend OnDemand, the premier OTT destination for gearheads, and was the VP of marketing at Hallmark Labs for the launch of its family-friendly SVOD service. He currently lives in Los Angeles.

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