YouTube Officially Enters the Skinny Bundle TV Business

In this segment from the Market Foolery, the team digs into the latest salvo in the cord-cutting wars with the release of YouTube TV, which stands out with its unlimited cloud-based DVR. And when it comes to monetization, being a subsidiary of Alphabet (GOOGL 0.55%) (GOOG 0.74%) gives the service a serious advantage.

A full transcript follows the video.

This video was recorded on March 1, 2016.

Mac Greer: On Tuesday, YouTube introduced YouTube TV. For $35 a month, you get around 40 streaming channels. That includes the major networks -- ESPN, Fox News, MSNBC. David, YouTube is also partnered with local TV stations, so you could get local sports and news. Now, what you do not get is CNN, HBO, AMC, A&E, Comedy Central. So, there are some channels missing there. A lot of competition in this space. I guess the phrase that pays is "skinny bundle." There are a lot of skinny bundles with Sling and the like. What do you make of YouTube?

David Kretzmann: I think the two advantages that YouTube has here, potentially, and they say that they are negotiating with other content partners, so hopefully they can get some of those other partners on board onto this package, but, the two things that stick out to me that YouTube can do probably better than anyone else, especially with the current players, they're offering unlimited cloud-based DVR storage. Essentially, you'll be able to record up to nine months of content on YouTube. So, they're leveraging the dominant Google Cloud infrastructure in business that Alphabethas built up over the years. That's something you can't do with Sling TV. With Sling TV, you can only watch it live. You can't record something, you can't set up to record something ahead of time. You either watch it live or you miss it. I think that unlimited cloud-based DVR aspect, that's a really user-friendly aspect that tears into the traditional linear TV model. I think it makes the skinny bundle model, or that online streaming model, much more appealing and attractive for users. The other thing that sticks out to me that YouTube could probably do really well down the road is advertising. You could essentially, what Google could offer advertisers is say, "We know this individual, they search for these products, they have these Search terms on Google, they have these viewing habits on YouTube." I think Google could arguably do a better job than anyone else of really personalizing and targeting individual ads to users. So, your live TV ads would be different from Matt's, so to speak. I don't know if that's necessarily the plan right now right off the bat, but I think down the road, that is something that could really play to YouTube's advantage.

Matt Argersinger: It's fascinating to watch the evolution of the TV digital streaming market, whatever you want to call it. But in a way, I almost feel like we're coming full circle. If you think about it, when I learned that YouTube was going to have ESPN, I thought, that's huge, that's very compelling. But then, I say, wait, I still want CNN, I like AMC, I still want HBO. So, I start to think to myself, wait, I'm probably going to need two or three skinny bundles. Plus HBO Now, plus Netflix. Then all of the sudden I'm paying over $100 a month anyway, and then it's like, why don't I just stick with my cable subscription?

Greer: I need a keyboard to go with my iPad.

Argersinger: It's interesting. I think, if you really ask a consumer what they want, they want the true à la carte service. Just give me the 15 channels I want plus HBO and plus Netflix. That's what I want. And I'll pay a fee for that. But the bundling continues, and that's something that cable companies have done successfully for decades now. So, it seems like we're coming full circle with the TV market.

Greers: Guys, this really also seems like kind of a play for the future. Piper Jaffray had a recent report that said 26% of teens watch YouTube every day. As those teens get older, and as they make more and more purchasing decisions, maybe YouTube TV becomes their television.

Argersinger: It's already a tremendous brand. If you think about, amazingly, if you think about the Mount Rushmore of online properties, YouTube is absolutely there right next to Google which acquired, brilliantly, YouTube some 10 years ago now. Amazing.

Kretzmann: Yeah, and the Wall Street Journal just reported that the amount of content viewed on YouTube each day is now a billion hours a day. That's up 10X since 2012. So, the level of engagement that is on YouTube already is staggering. I think this TV offering, I think this is one of the more attractive TV offerings, aside from those properties that aren't included in this initial bundle. But I think with that cloud storage, that makes it very appealing, especially to younger viewers who don't necessarily want to sit down and watch a live show from eight to nine at night. They want to watch it whenever they want. They don't want to watch commercials. So, with that cloud storage, you can watch it when you want, you can skip the commercials. From a user experience perspective, I just think that's far and away above live TV, whether it's through a traditional cable package or online streaming. People just want to watch things on their own terms. I think this skinny bundle offering with YouTube is moving closer to that direction. But like Matt said, it's still not true à la carte. I think, ideally, people would pay $5 for CNN, $10 for ESPN, they'd be able to just pick --

Argersinger: $20 for the NFL games that I want to watch this month.

Kretzmann: Right. And potentially just paying for a game. Maybe I'm not an NFL fan, but I'll pay to watch the Superbowl, or something like that. I think it'll be interesting to see if we move in that direction. I think from a user experience perspective, that's probably what most people would like. But whether or not the cable companies let that happen, they'll certainly be resistant to moving in that direction.

Greer: How about, best thing you have watched recently, as we close?

Argersinger: Let's see ... I watched this show called Travelers on Netflix. I don't know if you've seen it, it's one of those Netflix Original Series. Really well done. It's a slow starter, as a lot of these series are. But by the fourth or fifth episode, I was addicted, and I think my wife and I binged in like three nights. It was good stuff.

Kretzmann: I recently watched Sneaky Pete --

Greer: Solid.

Kretzmann: -- which is one of the most recent Amazon Originals. Also, The People vs OJ Simpson, that was on Netflix, that was great. As someone who was born in 1992, I missed the OJ story, and now I get it, I get why people are obsessed with it. It's a great story.

Argersinger: I can't believe that.

Kretzmann: I'm catching up on my history.

Argersinger: I watched the white Bronco live with my dad.

Greer: Speaking of catching up, I watched Dumb and Dumber for the first time with my kids.

Argersinger: For the first time? Wow.

Greer: Yes, I have never seen it. Father of the year. My eleven year old loved it. As did my eight year old.

Kretzmann: Quality entertainment.

Greer: Yeah, it's high brow. On a slightly more serious note, there's a new HBO show called Crashing, which is really good. I'm two episodes in. The producer is Judd Apatow. It's very well done. Shout out to that.