Ex-Hulu CEO Jason Kilar Unwraps YouTube Rival Vessel

For $2.99 a Month, People Can Watch Top YouTube Stars' Videos Days Before They Hit YouTube

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Vessel will launch early next year with mobile apps for Apple's iPad and iPhone.
Vessel will launch early next year with mobile apps for Apple's iPad and iPhone.
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Almost two years after stepping down as Hulu's CEO, Jason Kilar is ready to open up about why he plans to take on YouTube with his new company Vessel.

"Video creators have used the internet exclusively for their distribution. They can become popular. They can generate a following. They can even create a brand. But so far, they haven't yet been able to build a great business on the basis of video distribution digitally alone," Mr. Kilar said in an interview on Tuesday.

Vessel will launch early next year as an ad-supported, subscription-based streaming-video service with the tagline "Watch your favorites here first." People will pay $2.99 a month to watch videos from some of their favorite YouTube stars at least three days before new content hits the Google-owned video service or anywhere else. Ad Age had previously reported on Vessel's plans.

Just like there are people willing to sit through commercials to watch a TV show live or pay $12 to see a movie in theaters, Mr. Kilar thinks there are people willing to pay for early access to YouTube videos.

"What we've created at Vessel is what we internally call the web's first window," Mr. Kilar said. What Vessel has also created is a velvet rope for digitally native content, putting the web's most popular medium -- short-form video -- on the same premium pedestal as TV or movies. By this time next year, his company likely won't be alone as YouTube and online video networks AwesomenessTV and Fullscreen are each expected to premiere their own subscription-based services.

But the medium's maturation won't be without its growing pains. A lot of people probably won't be willing to pay Vessel's subscription fee. They won't have to. Vessel will also have a free, ad-supported tier for those unwilling to pay for videos they could probably watch for free elsewhere, but those people will have to wait for the subscription-only window to close.

Creators will also have a choice. They can paywall their videos for three days or longer and receive a cut of Vessel's subscription revenue as well as advertising revenue. Or they can opt out of the paywall and syndicate their videos on Vessel's free service -- and simultaneously YouTube, Facebook, etc. -- and only receive the ad-revenue split. And since Vessel is signing its deals on a by-show basis, a creator could choose to put one YouTube series behind Vessel's paywall and limit another to the free service.

So far, YouTube stars including Rhett & Link and Shane Dawson and online video networks like Machinima and Tastemade have agreed to put their videos behind Vessel's paywall, as have A&E Networks and Alec Baldwin, who will premiere an original series "Alec Baldwin's Love Ride" on Vessel next year. Meanwhile others like Vevo, Funny or Die and BuzzFeed will syndicate on the free service only.

Vessel is offering creators a more favorable ad revenue split than the 55% YouTube offers. Vessel's creators will receive a 70% cut of the revenue from ads shown against their videos. Those creators who put their videos behind Vessel's paywall will receive a 60% cut of subscription revenue based on how many minutes paying subscribers spending watching their videos. And they'll receive $7 for every person they refer to Vessel and convert into a subscriber.

Creators receive a higher split of Vessel's advertising revenue than subscription revenue because the subscription service comes with extra costs like credit-card processing fees, customer support and subscriber-acquisition costs, Mr. Kilar said.

Vessel already doled out some money in advance of next year's launch to creators who needed a little extra enticement to become involved. That money will eventually count against the advertising and subscription revenue they would have received from Vessel, so it's not like those creators receive more money than others.

"What we've created with Vessel is a service that we project is going to deliver over $50 per thousand views to creators," Mr. Kilar said, echoing a pitch he'll publicly make when Vessel opens up a preview for creators on Wednesday. That $50-per-thousand-views projection is more than 20 times as much as the $2.20 that Vessel estimates those creators typically make for the same number of views on a free ad-supported service like YouTube.

What Mr. Kilar and his team have created with Vessel is essentially a more expensive and more expensive-looking version of what's already available on YouTube and elsewhere.

The service -- which will initially be available as a mobile app for Apple's iPad and iPhone and as a browser site -- bears a resemblance to Hulu's sleek visual design with large images serving as thumbnails, as opposed to YouTube's text-heavy, search-like design. As with YouTube, people can browse videos according to categories like comedy, sports, news and food, and can pick which creators to follow and leave comments on their videos.

Even Vessel's ad products aren't much different than a standard video ad or full-screen banner. But then they are. While Vessel ads are unskippable and the service will run some 15- and 30-second spots, its more prevalent video ad format will be a 5-second pre-roll. That happens to be the same amount of time that elapses before YouTube's ubiquitous skippable TrueView ads allow viewers to cut off an ad with the click of a skip button. And its full-screen display ads appear while scrolling through a content feed but also animate.

"If we've done our job right, this won't feel like the free web because it's not. It's a premium experience," Mr. Kilar said.