Google Inc (NASDAQ:GOOG), (NASDAQ:GOOGL) is going to start asking customers to pay for YouTube this year, and at least one analyst thinks the idea is going to go swimmingly. Bob Peck of SunTrust Robinson Humphrey would be looking for 8 million subscribers to pay $9.99 per month to join the service in the medium term, driving YouTube revenues up by 16%.
According to the analyst a YouTube subscription service makes sense for Google on a number of fronts, not just as a way to pad revenue from the world’s most popular video service. Peck recons that Google will need to establish that kind of subscription in order to concretely attract premium content to the platform and to establish a closer relationship with its most valuable customers.
Google going for golden content
The search for quality online content is slowly moving further and further away from YouTube. Though Google still gets an incredible number of followers, the kind of content creators that the company is able to attract has become limited. With web services like Netflix and Yahoo creating their own content Google is getting defensive and ensuring that it can make its users pay for premium in the same way.
This works on both sides. Because Youtube has been a free service for so long, Google may have trouble convincing users to pay for the platform. With Google’s ordinary monetization system, content creators would not be able to spend competitively on projects, leaving the company with second-tier content across the board.
According to Peck “Further, offering multiple forms of content monetization could support better brand advertiser adoption, content creation and other positive outcomes.”
Google monetizes YouTube
Google is the king of monetizing the internet, and the company’s performance with YouTube in recent years has been nothing short of phenomenal. The idea that it could boost revenues by more than 15% in a single blow is incredible, and there are reasons to doubt Peck’s version of the future of subscriptions at Google.
Youtube has a reach of just about 194 million in the US every single month. Turning 4% of them into subscribers in the short term is going to be a difficult sell, and YouTube is going to have to offer a major reward in order to make that happen. Content costs money, either to create or to buy in. Google will have to make huge investments in a highly competitive market in order to attract those users.
Google investors lose faith
It’s possible that Google could attract that number of subscribers, but faith in the company’s business acumen is at an all time low, and the company’s investors are fed up with a lack of growth. In the last twelve months shares in the company have traded almost entirely flat, losing a fraction of their value.
There’s a huge amount of growth already priced into Google and though the company might be able to lift YouTube revenue significantly by bringing in subscription based content, investors may not see it as enough. Class C shares in Google are set to open at $541.61 each on this morning’s market.