Online video service YouTube has launched a pilot subscription option as part of its existing partner programme, with an array of 53 thematic channels available to YouTube users for a monthly fee of $0.99 upwards. Each channel offers a 14-day trial period. Further channels will be added in the next few weeks. At present, the subscription programme is available only to partner channels selected by Google, however a 'self-service' rollout of the programme is planned.

Channels are available as 'a la carte' options, and can be subscribed-to individually; however the capacity to cope with packages or channel bundles is also built into YouTube's system. Some of the channels available at launch (such as the series of '.TV' channels from Smart Media) can be taken in multi-channel packages, although the majority are currently accessible on a standalone basis only.

A range of genres is currently represented by the selection of paid-for channels, including kids, sports, lifestyle, cooking, travel, automotive, fashion and entertainment. Companies involved in the present wave of the paid-for initiative include DHX Media, TNA Wrestling, UFC, Treehouse and the PGA. Partners determine regional availability of their channels, and are able to tailor channels and their content by geography.

The move into subscription services was the next logical step for YouTube, which, over a period of years, has seen consumption on the platform shift from user-generated and submitted videos towards professionally-produced content. Extending the array of business models offered to partners will be essential to encouraging additional professional content players to use YouTube as a distribution platform.

The partner programme has been a key element of YouTube's push to reposition itself away from its user-gen origins. Essentially, the partner programme allows individuals or companies to take a cut of ad sales made against videos which they upload (or in some cases, offer videos on a transactional basis). The company debuted the programme in 2007 with a very limited array of manually selected partners, but in 2012, opened up the initiative to any video uploader across 20 markets. This conceptually simple step has repositioned YouTube as a platform on which parties can simply and easily generate revenue, and has acted as clear incentive for uploaders to begin posting higher quality video.The original content initiative has been the second string to YouTube's proverbial bow. Recognising that key production companies and channels were reluctant to take on the risk of launching original content onto YouTube, and realising that building a brand around unique video would be difficult without them, Google launched a $300m up-front funded original content initiative for ad-supported video in the US in 2011, followed by a European extension in 2012. The up-front funding (which participating companies effectively pay back via a revenue share with YouTube) was critical in persuading companies to launch channels on the platform, programmed with exclusive original content. Major content companies which launched channels as part of this include Endemol, All3Media, BBC Worldwide, Fremantle Media, Warner and WWE.

Advertising is however, fundamentally a model which requires scale. Niche content, which appeals to only a small subset of online video viewers, may struggle to generate a substantial enough audience to result in meaningful returns for any content company looking to monetise its catalogue via advertising on YouTube. YouTube itself is adept at aggregating niche audiences for advertising purposes, but offering content companies a mechanism to generate sufficient revenue at smaller scales will allow YouTube to further expand its array of partners and further consolidate its position as the go-to video portal. Many of the 53 channels launched as part of the initial paid-for wave are offering content with niche appeal - channels such as 'Fix My Hog' - videos around motorcycle maintenance, or 'PDN' - a personal defence learning channel.

Ultimately though, the niche paid-for channels currently represented in the offer are simply another stage in the creation of a user base which is able and willing to pay regularly for content (YouTube has been offering movies and premium TV shows on a transactional basis for some time, although this has always been a very small component of the service). The a la carte package structure which allows users to pick and choose channels is reminiscent of the early days of many pay TV services, before it was recognised that bundling channel packages was often a more effective mechanism of encouraging spend.

Early channel bundles/packages have already emerged amongst the array of available content. SmartTV.com aggregates seven '.TV' channels, covering travel, automotive, pets, cooking and other categories, although a relatively high package pricing of $9.99 per month will likely discourage widespread uptake. While there is a risk that hitherto free partners may consider taking their content pay, reducing the appeal of the platform for free users, Google is managing the paid partner programme closely at this stage and will almost certainly be keeping a close eye on its impact on the wider YouTube user base.

Although channels such as 'Pets.TV' are unlikely to see major pay TV platforms or channels quaking in their boots, YouTube's expansion into this space poses longer-term threats to an array of media companies. Its willingness and ability to encourage major media companies to create original shows for the platform, combined with the additional monetisation options now available to them poses a serious threat to traditional distribution models. With broadband uptake in a number of developed markets on par with or even exceeding pay TV reach, and the fact that YouTube represents a viable platform of scale for content distribution, having a billion monthly users worldwide, the option for sports organisations, or production companies with key show brands to go direct to consumers, bypassing distributors, pay TV channels and pay TV operators (each of which effectively take a cut of consumer spend) has become a real possibility. Alongside the possible risk to pay TV channels and platforms that their suppliers will look at this alternative route to market seriously, further fragmentation of the multichannel universe (which pay TV and free terrestrial/satellite services began) is now an additional danger.

DHX,which programmes three of the new subscription channels across 10 countries, controls show brands such as Paddington Bear, Strawberry Shortcake and Inspector Gadget. DHX registers the key benefits of launching on YouTube as including instant scale (without the regulatory headaches of satellite channel launches or drawn-out commercial negotiations with channel groups or cable operators) and greater share of consumer spend. DHX channels cost £2.49 per month in the UK via YouTube - DHX will see over half of the revenue generated from these subscriptions. Were it working with a pay TV operator, it would see a fraction of the per-subscriber income. DHX anticipates that if all goes to plan and the platform scales appropriately, it will be launching and programming original content channels on YouTube within two years, with availability across hundreds of countries.

While all of these developments do not necessarily mean that producers and distributors such as DHX will be cutting traditional paid-for distribution mechanisms out of the picture any time soon, the first steps towards such a future have now been made.

Organization
DHX Google Inc. YouTube
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