The Google-owned video platform on Wednesday unveiled YouTube Red, a venture into subscription video on demand. For $9.99, users will be able to browse videos on YouTube ad free.
The centerpiece of the offering is a slate of original scripted and unscripted projects set to premiere in 2016 and available only to subscribers. The move puts YouTube, long the dominant ad-supported digital video platform, in the same space as Netflix, long the dominant ad-free subscription video platform.
That space is getting crowded. And Netflix is being forced to react to the crowding.
YouTube is only the most recent in a series of challengers to Netflix. Earlier this year, HBO and Showtime each launched stand-alone streaming services. Hulu, which has operated under a dual paid-subscription and ad-supported model since its 2008 launched, rolled out an ad-free option last month. And Fullscreen, which began life as an aggregator of content on YouTube, said it will launch its own off-YouTube subscription service later this year.
Even cable network Lifetime jumped in with its boutique Lifetime Movie Club offering in July.
Netflix, meanwhile, is seeing its growth slow, at least in the United States. Stock prices dipped last week when, as part of its third-quarter earnings report, the company reported lower-than-expected gains in U.S. subscribers.
And the company is now asking for more money from new subscribers. Last month, following Hulu’s ad-free announcement, Netflix raised the monthly cost of its standard streaming plan from $8.99 to $9.99.
It’s not coincidence that the price increase came on the heels of more expensive offerings being rolled out by other brands.
Netflix has long been considered the benchmark for what customers would be willing to pay for a streaming service. But when HBO New debuted in April, it did so with a $14.99 pricetag. Showtime’s eponymous service costs $11.99, as does Hulu’s new ad-free product.
“It’s responsive,” Brian Solis, principal analyst at Altimeter Group told TheWrap of Netflix’s price hike. “I believe that everyone is trying to improve margins for the coming increase in content value.”
All that movement in price appears to have pushed what consumers are willing to pay upward, if only slightly. During a Q&A with reporters Wednesday, YouTube Chief Business Officer Robert Kyncl indicated that YouTube Red’s $9.99 price tag mirrored the ceiling for consumer expectations. “We’ve seen consistently that subscription services over the Internet priced over that amount are having a tough time gaining tremendous traction,” he said.
And Netflix isn’t going away any time soon. Earlier this year, a Janney Montgomery Scott analyst estimated that the company will spend as much as $5 billion on content in 2016. A March report found that the company accounts for 37 percent of all North American downstream Internet bandwidth during peak hours, versus 16 percent for YouTube. Netflix is still Goliath, even if more and more Davids are lining up to take their shots.
But the leveling off of Netflix’s domestic growth and the fiddling with price — last month’s change was the second price adjustment in a little more than a year — demonstrate that competition is real and the marketplace will support multiple competing services.
Whether YouTube Red can be one of those legitimate competitors is unknown. Not all creators and companies on YouTube have agreed to the new terms of service required for subscribers to view their videos ad-free (Disney is among those who haven’t signed on yet). And the original programming slate is heavily focused on YouTube-bred talent such as PewDiePie and Lilly Singh.
Playing to its base with original programming represents a risk for YouTube, as fans of its biggest stars are used to watching them for free. But it also represents opportunity. Hulu and Amazon have sought to challenge Netflix with the same sort of premium dramas and comedies that can be found on Netflix — and which HBO and Showtime have been making for years.
YouTube’s originals efforts are being led by former MTV programming chief Susanne Daniels, who inherited the current slate when she walked into the job three weeks ago but is already adding to it. Her challenge is to find content that appeals to younger viewers, potentially by leveraging the popularity of YouTube’s native talent and embracing formats, such as reality programming, that other services have avoided.
Netflix, meanwhile, is steeling itself for a future of muscular competition, in part by moving aggressively into international territories, where its growth has exceeded recent targets.
“We’re really big on everybody has got to get into streaming,” CEO Reed Hastings said Oct. 14 during the company’s earnings call. “It’s been our main message for several years that what is known as channels is going to become apps, and that all of these providers need to have great apps, on a phone, on a tablet, on a TV.”
As that vision becomes a reality, thanks to cord cutting and the fraying of the traditional cable bundle, Netflix is positioned to remain the leader in the field. But if it wants to retain that position, it will need to continue to respond to the increasing number of challengers looking to dislodge it.
YouTube's 25 Biggest Stars (Photos)
Galvin Free and Daniel Gruchy created "The Slow Mo Guys" in 2010, a series which simply consists of different things filmed in extreme slow motion. Their channel now has over 4 million subscribers and over 330 million views.
Zoe Sugg, known to her fans as Zoella, hosts a fashion, beauty and lifestyle channel. She recently signed a two-book deal with Penguin Books for "Girl Online," a loosely autobiographical book about an anonymous young blogger goes viral.
Shane Dawson is best known for creating YouTube comedy videos that include recurring characters, and spoofs of popular TV shows and music videos. The multi-talented online star has also released five songs of his own and made his own film on Starz's "The Chair" titled "Not Cool."
YouTube beauty expert Michelle Phan became Lancome's official make-up artist and in 2011 she co-founded ipsy, a monthly subscription service for make-up.
Matthew Clarke rose to fame after a video of him and friend, David Milchard, reenacting conversations with his two-year-old daughter, Coco, went viral. He is currently on Season 3 of his series as he reenacts conversations with the now 3-year-old.
Grav3yardgirl, also known as Bunny Meyer, hosts fashion and beauty videos. She is known for her segments "Does This Really Work," "Follow Me Around" and "First Impression Friday."
Grace Helbig entered the YouTube arena by creating R-rated versions of fairy tales. The unique twist on children's classics won Helbig her own show on My Damn Channel called "DailyGrace," and an gig on "Attack of The Show" as both a host and correspondent. She currently has a pilot in development at E!.
Felix Kjellberg, better known online as PewDiePie, is a video game commentator. He has over 31 million subscribers to his channel and is one of the fastest-growing YouTube channels.
Bethany Mota rose to YouTube fame after posting haul videos in 2009. Since then, she's gone on multiple tours, paired with Aeropostale to create a fashion line and currently stars on the 19th season of "Dancing with the Stars."
"Epic Meal Time," created by Harley Morenstein and Sterling Toth, is a Canadian cooking show that creates high calorie meals, usually including meat and alcohol. The channel has over six million subscribers and has won the Shorty Award for Food.
The founder of 5 Second Films, Brian Firenzi started a movement in 2005 in the dormitories of USC that has led to over 115 million views on YouTube. The micro-films have even featured the talents of Patton Oswalt, Andrew W.K. and "Weird Al" Yankovic.
With over 1.5 million followers on his channel, Chester See entertains his vast audience with original songs, sketches and short films.
After breaking his back and legs during a snowboarding accident, Devin Graham moved behind the camera for a series of cinematic, breath-taking extreme sport videos that have amassed more than 415 million views and more than 2.5 million subscribers.
Michael Jordan or Muhammad Ali? Hitler or Darth Vader? These are the questions we want answered, and Peter Shukoff and Lloyd Ahlquist answered them with "Epic Rap Battles of History." Their channel boasts over 11 million subscribers, with over 1.2 billion views for their videos.
Hannah Hart's "My Drunk Kitchen" embraces alcohol-fuelled baking, drawing in over 1.4 million subscribers and over 105 million views. She was also recently chosen to co-host the Streamys with friend and fellow YouTube star, Grace Helbig.
Jesse Wellens pranked his girlfriend, Jeana, attempting the cinnamon challenge in 2007, leading to the launch of "PrankvsPrank," an ongoing prank war that has since gained over 884 million combined views and 6.4 million subscribers. Surprisingly, the couple is still together.
Jenna Marbles has over 14 million subscribers, making her the seventh most-subscribed-to channel and the top YouTube channel run by a woman, with over 1.5 billion views.
Lindsey Stirling -- a violinist, dancer and performer -- posts both music videos and live performances on "Her YouTube Channel," which has over 5 million subscribers and 735 million views.
Henry Reich created a series of science education videos called "MinutePhysics" in order to get kids excited about learning. His channel has over 2.5 million subscribers and videos have been featured on "PBS Newshour" and "NBC News."
Philip DeFranco has hosted his own news/talk show on YouTube since 2007, which has garnered over 3 million subscribers and 1 billion views.
The Piano Guys gained their popularity through YouTube where they posted piano and cello renditions of popular songs. They have since attracted over three million subscribers and many of their songs have more than 20 million views each. After getting a record deal, their first four albums all reached No. 1 on the Billboard charts.
Ray William Johnson started hosting "Equas Three," a commentary show on viral videos, from his dorm room in 2008. That has grown to over 10.8 million subscribers and over 2 billion views. Johnson left the show in March, but Robby Motz has since taken over and the funny, biting commentary hasn't slowed down.
With nearly 20 million subscribers, 3.7 billion video views and three different spans of time as the most subscribed YouTube channel, Ian Andrew Hecox and Anthony Padilla can lodge a claim as the Lords of the Internet with their comedy duo "Smosh."
Toby Turner has succeeded with not one, but three YouTube channels, with a combined total of 14.9 million subscribers and over 3.2 billion views.
UberHaxorNova has earned over 2 million subscribers through his inappropriate jokes. He is also known for his "rage" videos.
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The video platform has created a new generation of online celebrities, earning them million of views and sometimes millions of dollars
Galvin Free and Daniel Gruchy created "The Slow Mo Guys" in 2010, a series which simply consists of different things filmed in extreme slow motion. Their channel now has over 4 million subscribers and over 330 million views.
