YouTube's Ad-Free Paywall Could Bankroll Its Original-Production Plans

YouTube Boss Said Online Video Service Is Exploring a Paid Version

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Credit: Andrew Harrer/Bloomberg

YouTube is trying to establish itself as a premium video service, which might mean adopting a freemium business model.

The Google-owned online video service is looking into the possibility of opening up an ad-free paid version of its service, YouTube boss and former Google ad chief Susan Wojcicki said at Re/code's Code/Mobile conference Monday night.

"YouTube right now is ad-supported, which is great because it has enabled us to scale to a billion users; but there's going to be a point where people don't want to see the ads," Ms. Wojcicki said on stage. People "will either choose ads, or pay a fee, which is an interesting model…. We're thinking about how to give users options."

It's unclear how far along YouTube's thinking is and if or when it might introduce a paid tier. A YouTube spokeswoman declined to comment beyond providing Ms. Wojcicki's on-stage comments to Ad Age.

YouTube seemingly doesn't need the money from a second, subscription-based revenue stream. It recorded $5.6 billion in gross revenue last year, according to eMarketer estimates. However the company only netted $1.96 billion of that money, a good chunk of which likely went to its infrastructure costs for all that video content it hosts free of charge.

As YouTube looks to expand beyond its traditional user-generated content into more premium programming to better compete against Netflix and Amazon and attract TV ad dollars, it may want to build as big a war chest as possible, especially as it opens up its wallet once again to fund more TV-quality content.

YouTube has already confirmed that it's planning to launch an ad-free subscription-based music service. That music service could be considered a pilot for YouTube's larger paywall play, which could pay for the company's pricey original programming plans.

YouTube's pending music service will not be a standalone app but will instead be a paid tier within YouTube, the company confirmed to Ad Age in June. Like Hulu or Spotify, people will be able to visit YouTube and opt for a free ad-supported experience to watch music videos or listen to songs, or they can pay for the ad-free version that carries other perks like offline viewing.

And the music service won't be limited to traditional music from label artists like Adele but would span fan remixes, covers by YouTube stars and original songs from up-and-coming acts. The line between music and music-related content is a blurry one that YouTube could blur further to include any and all content on YouTube, provided the content creators sign deals with YouTube to make their videos available on that paid service.

But why would people pay for something they could otherwise get for free? Do they hate ads that much? Maybe. Or maybe YouTube will dangle a big, fat carrot called premium content that's only available on its paid service.

YouTube has begun requesting proposals from online video companies, YouTube creators and production studios for original, TV-quality shows that YouTube would fund.

Among other programming formats, the company is looking for original series that would premiere exclusively on YouTube and could be compressed into 22-minute episodes for YouTube to take to TV, according to people familiar with the matter. Two of those people said YouTube is willing to pay $150,000 to $250,000 for each half-hour episode, a pretty penny that is on par with TV spending.

If YouTube is already taking a page from Netflix's and Amazon's playbook to build itself up as a digital destination for TV-quality programming, it could take another and put those programs behind a paywall to bankroll further productions.

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