YouTube will imminently launch a movie-on-demand service charging users to stream mainstream Hollywood movies off the world’s largest video sharing site, TheWrap has learned.
The new service means a full-bore challenge to Apple’s iTunes service – currently the most powerful player in paid video streaming -- and a welcome new revenue stream for Hollywood as home entertainment revenues continue their steep decline.
The service may start as early as this week or next, and is expected to be announced soon by YouTube.
Major studios including Sony Pictures Entertainment, Warner Brothers and Universal have licensed their movies for the new service, as have numerous independent studios, including Lionsgate and the library-rich Kino Lorber, according to movie executives with knowledge of the deals in place.
YouTube has been laboring to bring all the major Hollywood studios on board before announcing it, according to one executive involved in the deal. But so far Paramount, Fox and Disney have declined to join.
(Update 7:37 p.m. PST) YouTube, which had earlier declined to comment for the story, issued a statement after this story was published, pointing out that it has rented movies for a year, while declining to comment on the broader initiative it is about to launch with the major studios on board.
"We've steadily been adding more and more titles since launching movies for rent on YouTube over a year ago, and now have thousands of titles available," a spokesperson said. "Outside of that, we don't comment on rumor or speculation."
But in fact the video giant has never rented mainstream movies on this scale during the traditional DVD window. The major studios, who were once leery of YouTube, now see it as a potentially lucrative platform.
“We think it will start with VOD, but broaden to include sell-through over time,” said a senior executive at one Hollywood studio that has signed the deal with YouTube. “We are pretty excited because we are happy to see new entrants come in transactionally rather than a subscription model.”
The service is the biggest studio VOD deal since all the major studios signed on to Apple’s iTunes rental service in January 2008. Fox, Disney, Warner Bros., Paramount, Universal, Sony, MGM, Lionsgate and New Line were all on board for that initiative. Apple charged as low as $2.99 rental fee for that service.
It was not clear what YouTube would charge. But it means the site's 130 million monthly users will be able to pay to watch movies as they come out into the DVD market; it is the first serious foray by the Google-owned company into mainstream movies and charging money for video.
Hollywood studios have long struggled to find a way to marry their high quality content – for which they want to be paid – with the largest video site in the world best known for cats peeing on toilets.
Paramount and Fox have declined to be part of the service at this time, according to knowledgeable executives. Disney's status is still unclear, and a spokeswoman declined to comment for this story.
For movie and YouTube fans, the service means that movies they often see at the cineplex will be available on the same day and date as they can be rented at video stores or iTunes, far ahead of other subscription streaming services such as Netflix.
“What’s really good about their approach is rather than another subscription offering, they’re going into a fresh area where there has been fewer leaps forward," said the studio executive.
The executive said that Hollywood studios were excited by having a tech giant like Google involved in a new streaming service, with the hope that the parent company would develop new technologies to encourage sell-through purchases of movies that could be securely stored in a digital locker.
At a seminar this month where Google executives discussed their strategy for movie advertising, Robert Kyncl, YouTube's vice president of TV and film entertainment hinted at a plan in the offing.
"Imagine if you had a video store on YouTube, where you could rent or buy the movie without being sent elsewhere," he said.
But when asked about specific plans for streaming movies, Kyncl said: "Obviously, there are things coming, but we can't talk about them yet."
YouTube has been flirting with Hollywood for several years, and has struggled to figure out how to stream movies in concert with the major studios for at least the last two years.
The shift that led to the culmination of this deal seems to be the arrival of Kyncl from Netflix in September 2010, where he ran content acquisition. He brought on board two Paramount executives, Alex Carloss and Malik Ducard, recently let go from that studio's digital team in an executive reshuffle.