Broadband Cable Association of Pennsylvania


May 7, 2013

Newspapers have digital subscriptions. Record labels have iTunes and Spotify. And YouTube is about to have special programming for paying customers. This week YouTube, the world's largest video Web site, will announce a plan to let some video makers charge a monthly subscription to their channels. There will be paid channels for children's programming, entertainment, music and many other topic areas, according to people with knowledge of the plan, who spoke on condition of anonymity because they had been asked by YouTube not to comment publicly yet. Some of the channels - there will be several dozen at the outset - will cost as little as $1.99 a month.

If the subscription option catches on, it could herald a huge change for the online video industry, which has subsisted almost entirely on advertising revenue. It could give producers of Web video series a second source of revenue, analogous in some ways to the flexible pay walls that some newspapers and magazines have adopted. It could also put more pressure on the cable television industry, which is fighting off fresh competition from the Web.

For now, though, it is just a test, intended in part to mollify some of the most popular contributors to the sprawling Web site. The overwhelming majority of videos on YouTube, a unit of Google, will remain free to all. But some homegrown YouTube stars, start-ups and major media companies have been frustrated by what they see as relatively low amounts of revenue coming from the ads that YouTube attaches to their videos. By enabling the subscription option, YouTube is giving them another way to profit from their work - if their fans are willing to pay to watch, that is. Some of YouTube's partners planned to start promoting their paid channels on Thursday, though the announcements could come sooner, in light of recent news coverage. (The Financial Times reported on Sunday that the announcements were expected as early as this week.) YouTube will process the payments through Google Wallet, the system that Google's app store uses.

As YouTube users read about the plan on Monday, many objected to paying for something they treat as free and ubiquitous as air and water. But others said there were some channels worth paying a few bucks for. A YouTube spokesman declined to comment on the specifics of the subscription plan. In a statement the company said, "We have nothing to announce at this time, but we're looking into creating a subscription platform that could bring even more great content to YouTube for our users to enjoy and provide our partners with another vehicle to generate revenue from their content, beyond the rental and ad-supported models we offer."

Paid subscriptions to YouTube channels are a long time coming; Google applied for a patent for a "self-service channel marketplace" in 2011, and the subscription plan has been an open secret in the industry almost since then. The plan has gained momentum as Netflix, Hulu and Amazon have drawn in subscribers for their video offerings. Netflix has nearly 30 million streaming subscribers in the United States; Hulu's paid service, Hulu Plus, has about four million. Amazon has not said how many people pay for Amazon Prime, which includes its video service, but the number is known to be in the millions. Other companies, like AOL and Yahoo, have invested in free video programming, supported by advertisers. YouTube's strategy stands out from all the rest; its infrastructure increasingly lets video makers be their own Netflixes and Hulus, albeit on a smaller scale. It looks more like the a la carte model of a newsstand than the bundled channel model of cable television.

YouTube pitched two options to potential partners: one version of paid channels with ads (allowing for two sources of revenue, like cable television channels have) and one version without ads. The ad-free option was appealing to programmers of children's channels, several of which will be available soon, according to some people briefed on the plan. "It's a worthy experiment," said Laura Martin, a senior analyst at Needham & Company, who has advocated for dual revenue streams for all manner of media companies. She said Hulu Plus and The New York Times's online subscriptions were two successful models for producers who might try paid channels. Another appealing aspect of the pitch was this: some of the paid channels will be available internationally, in 10 countries to start, allowing for a vast potential audience overseas.

The subscriptions will not be for channels in the television sense of the term; rather, they will consist of libraries of videos on demand, much like the thousands of free channels already on YouTube. Some of the video makers who have worked with YouTube on the subscription option want to convert fans to paying customers; others hope to distinguish themselves by selling archives of old television episodes. But for YouTube, at least, advertising will remain the basis of its business. The company was estimated to take in $1.3 billion in ad revenues last year, and that number could climb to $2 billion this year, according to a recent report by Pivotal Research. YouTube executives held a promotional event for advertisers in New York last week and did not bring up the forthcoming paid channels or its past ventures into financing professionally produced channels. (It supplied an estimated $300 million to producers in 2011 and 2012, but it has backed away from that strategy of late.) "I thought YouTube was like TV. I was wrong. It isn't," Robert Kyncl, the company's global head of content, said at the event. YouTube, unlike television, is interactive, he said. "And YouTube is everywhere." New York Times

Outdoor Channel said Monday that its board decided the $237 million offer which it received on Friday from Leo Hindery's Intermedia was "superior" to a bid from Kroenke Sports & Entertainment. The company said Kroenke has until Thursday evening to submit a higher bid. Intermedia had originally bid $8 per share to acquire Outdoor last November, but that deal was scrapped after Kroenke submitted an unsolicited offer for the network in March. Kroenke's latest bid for the hunting and fishing channel--submitted on April 30--was $9.15 per share. Outdoor Channel said in a statement that it will terminate a merger agreement it had signed with Kroenke "if the Intermedia proposal continues to constitute a superior proposal" at 5 p.m. PT on Thursday. Kroenke would receive a $1 million break-up free from Outdoor if it ends up goes through with the Intermedia merger, the company added. Fierce Cable

State Sen. Chuck McIlhinney (R.,Bucks) told constituents last week that he opposes a "poorly thought out" GOP bill to change the way Pennsylvania awards its presidential electoral votes from a winner-take-all to a proportional system. The bill is sponsored by Senate Majority Leader Dominic Pileggi (R.,Delaware), who has 12 cosponsors for the measure. "I respect Sen. Pileggi a lot but I wouldn't support it," McIlhinney said, in a tape of a May 1 New Hope, Pa. town-hall meeting released by the liberal advocacy group People for the American Way.

Under Pileggi's proposal, President Obama, who carried Pennsylvania with 52 percent of the vote to 47 percent for Republican Mitt Romney, would have received 12 of the state's electoral votes to Romney's eight. McIlhinney said that the change would reduce the state's influence relative to other large states that continued to award all of their electoral votes to the popular-vote winner, making Pennsyvlania as insignificant as Vermont in the strategic sense. He is a member of the Senate's State Government Committee, which would hear the legislation if it ever moves onto the action calendar. "I could never see a presidential candidate ever getting more than 11 to 9, no matter who it is," McIlhinney said in response to a woman's question. "Because I am never going to see a candidate win 75 percent of the vote in Pennsylvania. So you could never even get more than 11 let alone 20 - which makes no sense to me whatsoever."

Pileggi has said that the bill is not a priority agenda item for the Senate's Republican majority, but Democrats and their allies have been campaigning against the proposal anyway, calling it an election "rigging" scheme that would reduce Pennsylvania's power in presidential elections and dilute the voting strength of minorities. People for the American Way volunteers have knocked on 3,000 doors in key state Senate districts and last month delivered to Gov. Corbett's office what the organization said were 100,000 signatures on a petition against the plan. Corbett has not taking a position on it. "It's time for the governor to step up and tell Pennsylvanians whether he sides with the best interests of the voters or with the interests of the Republican Party leadership," said Randy Borntrager, political director of PFAW.