Worth paying for?

ONE of the most popular videos this month on YouTube, an online video site, is a commercial by a bottled-water firm, Evian. In it, adults walking by a shop window see their baby lookalikes reflected, and start dancing with their former selves. The grown-up YouTube, however, looks nothing like it did in its infancy. Once a warehouse for pirated clips and amateur footage of cats, YouTube has been trying to transform itself into a sleeker, more sophisticated site that can compete with television for advertisers. It will soon look even more like television. On May 9th it is expected to announce that it will charge users for subscriptions to some “channels”.

Novice clips have attracted a tonne of views, but not a tonne of money, because advertisers are reluctant to place adverts next to shoddy homemade videos. Since Google bought YouTube in 2006 for nearly $1.7 billion, it has tried to make its adopted child polished, not just popular. Last year it spent an estimated $300m funding and marketing new “channels” with higher-budget comedy, drama and other shows, with some run by established media firms such as Fremantle.

According to Needham, an investment bank, YouTube will bring in $2.5 billion in advertising revenue in 2013, but that is not enough to move the needle at Google, or to make it a worthwhile outlet for content companies. Like newspapers that have decided they cannot survive by online advertising alone, YouTube needs to erect a “pay wall” for some of its offerings.

Subscriptions will reportedly go for as much as $1.99 per channel, and could grow to make up 10-20% of YouTube’s revenue, says James McQuivey of Forrester, a research firm. More than 1 billion people use YouTube each month, so getting even a small share of them to pay for content could prove lucrative, and will encourage more content providers to bring their material to YouTube. Videos of cats, no matter how cool, will not lure many paying subscribers; but channels with big, loyal followings, such as Machinima, which specialises in animated programmes and video games for young males, probably could. People are unlikely to cut their cable subscription for YouTube’s channels soon, but if its programming gets smarter, people may spend more time there.

Already YouTube is no longer just for amateurs. DreamWorks, a Hollywood film studio, recently announced plans to buy AwesomenessTV, a YouTube youth channel, for $33m. Jeffrey Katzenberg, a YouTube convert and DreamWorks’ boss, has called it the “medium of the future”. Time Warner, a big media firm, has invested in Maker Studios, which produces videos for YouTube channels.

Robert Kyncl, head of content at YouTube, sometimes boasts that YouTube heralds the “third wave” of programming, following broadcast and cable television. Other online sites are betting that having slick, new programming will attract people to their sites. Netflix has attracted the most attention for its splashy political drama, “House of Cards”, starring a brilliantly Machiavellian Kevin Spacey. But Hulu, Amazon, YouTube, Yahoo and Microsoft, among others, are also putting money into new series and original content. Anyone who thinks channels exist only on television is sorely mistaken.