YouTube pay channels inspired by European experience

YouTube’s launch of pay channels in the U.S. came as little surprise as it had been preparing the ground for over a year, launching its own dedicated channels in the U.S. in October of 2011 and telling the world about its plans for subscription TV.

Yet, the final preparations were made in the principle European markets of France, the UK and Germany, where YouTube, in October of 2012, launched 60 channels as a key part of its premium channel trial run. This gained access to some of Europe’s biggest content producers, including the BBC, Endemol, Euronews in France, All3Media, Fremantle, ITN Productions in the UK and the French media group Lagardere SCA.

The deal was that these groups could charge access to their content via YouTube, which would keep some of the proceeds. The channels covered a range of content on topics such as automotive, beauty, food, health, gaming, music, news and others, together with a few entertainment channels producing scripted content.

According to UK TV analyst group Rethink Research, this experiment led to YouTube’s decision to start making money out of channels in the U.S. as well, and to charge directly. YouTube is ready to hit the ground running, having already invested about $100 million in U.S. channels that, until now, have been free and paid for under the usual Google advertising model. But, this model has struggled to turn YouTube into a significant cash cow, as brand advertisers with the deepest pockets have been reluctant to invest much against mostly clips of variable quality and content, along with the occasional viral success.

This led YouTube to invest both in acquiring existing channels and also in producing its own content in some cases through partnerships with major broadcasters. An intriguing example is YouTube’s alliance with BBC Worldwide, the commercial arm of the BBC charged with earning money by selling overseas rights to content that, under its charter, it cannot charge for in the UK. This created the conditions for a symbiotic partnership as the BBC seeks to reduce dependence on the license fee levied on UK consumers, just as YouTube wants to avoid reliance on its longstanding advertising model. So, BBC Worldwide, aided by UK media company 360 Production, has just launched its second Google-backed channel, Head Squeeze, comprising topical science material produced specifically for YouTube, using comedians to lighten the content and hopefully provoke buzz around other social networks including Twitter. BBC Worldwide’s first original YouTube channel, called Earth Unplugged, was launched last year. However, this was mostly short-form content.

In one respect, YouTube’s move is a blow for cord-cutters who naively believed they could cancel their pay TV subscription and get OTT content for free. In fact, it is possible to accumulate a bigger bill on YouTube than via a pay TV provider if someone subscribes to many channels separately. In the U.S., YouTube will be charging between $1 and $5 per month for subscriptions to channels such as Fullscreen or Geek and Sundry, with 55 percent of proceeds going to the content provider.

This leaves some questions unanswered, such as whether the pay channels will carry advertising, or perhaps with consumers having the option to choose that instead of a subscription. This seems unlikely at present given that Google will want to test the subscription model and see whether it flies without the distortion of having an op-out for consumers who choose to receive advertising.