Google plans new YouTube subscription service

YouTube introduced a subscription-style music service in November, and has spent hundreds of millions of dollars to boost original content on the website. Photo / Getty

Google plans to offer a subscriber version of YouTube as soon as this year, letting viewers see millions of videos without having to sit through ads.

Revenue from the new feature, which will put Google into more direct competition with streaming services such as Netflix and Hulu, will be shared with video creators, Google told them in an email that was obtained by Bloomberg.

The service may debut by the end of the year, said a person with knowledge of the matter who asked not to be identified because the plans aren't public.

"By creating a new paid offering, we'll generate a new source of revenue that will supplement your fast growing advertising service," the letter said.

Google has been moving closer to charging users for content; the Web company introduced a subscription-style music service within YouTube in November, and has spent hundreds of millions of dollars on talent and production facilities to boost original content on the video website, which has more than 1 billion monthly viewers.

With ad-free subscriptions, Google is moving closer to competing with streaming services, including HBO Now (which debuted this week), for people's attention as they spend more time watching videos on the Web and on mobile devices.

"While we can't comment on ongoing discussions, giving fans more choice to enjoy the content they love and creators more opportunity to earn revenue are always amongst our top priorities," Google's YouTube said without commenting on the timing of the service.

We're increasingly moving into an age where consumers are learning to avoid advertising.

Rich Greenfield, analyst

YouTube will offer all the same videos without ads for a monthly fee, which hasn't been set yet, according to the note. The service is also likely to include offline access. Google is alerting content creators because it wants them to agree to new terms that would let it include clips in the subscription product.

"We're increasingly moving into an age where consumers are learning to avoid advertising," said Rich Greenfield, an analyst at BTIG. "Between DVRs, Netflix and now Amazon, we're increasingly learning to lead an ad-free life."

The move to introduce subscriptions is part of a broader shift at Google to generate more income that isn't based on advertising. Viewers can rent or buy movies such as Interstellar or The Interview on YouTube. In 2013, YouTube debuted paid channels for premium content. YouTube's Music Key Beta, rolled out five months ago, lets users access music on the site without ads for $10 a month, and also offers offline access.

YouTube is facing more competition for streaming videos. Netflix, which costs $8-$12 per month, has 57.4 million subscribers and features original content such as House of Cards and The Unbreakable Kimmy Schmidt. YouTube's share of streaming traffic during peak hours fell to 14 per cent in North America in the second half of 2014, compared with 19 per cent a year earlier, according to Sandvine, a provider of network-management tools.

"Anything they do to improve monetisation options is great for a content creator," Keith Richman, president of Defy Media, an online video producer, said in an interview. "I believe in their ability to create a subscription product. Their market position is so strong that it'll be hard for me to believe it could fail."

- Bloomberg