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Google Can Learn a Lot From Netflix

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YouTube continues to pursue the wrong path in the realm of premium online rentals.

Google's (Nasdaq: GOOG  ) wildly popular video-sharing site is trying to carve a path for indie filmmakers and active uploaders to sell their cinematic creations online. The experiment that began back in January -- when YouTube turned to its massive user base to pay $3.99 to rent one of five critically acclaimed Sundance-screened films -- has been marinating in weak sauce ever since.

The initial trial was poorly received. A quick check of The Cove -- the most prolific rental offering so far -- finds that the video views are no longer visible. What's the platform trying to hide?

There's a workaround to get our answer. If we go to the movie's channel, we see that there are two uploads on it. The channel has received 74,379 upload views, with 73,924 of those going to the free movie trailer. The balance, one would infer, represents views of the premium flick itself. Can it be? Has the movie really received just hundreds of premium rentals, or did YouTube just shut down those views altogether after a certain point?

I'm not here to trash the YouTube Rentals program. I'm here to help. As the site expands the program by accepting more user submissions through its pay-to-view model, it's destined to repeat the mistakes that other dot-com heavyweights with piecemeal streams have encountered.

Let's go over a few of the reasons why premium rentals on YouTube haven't exactly set the world on fire:

  • Renters must set up Google Checkout accounts to pay for the streams. Having an option for eBay's (Nasdaq: EBAY  ) more popular PayPal, or even regular credit cards, would be more conducive, though clearly this is set up as a way to make Google's own financial platform more ubiquitous.
  • YouTube's popularity is the result of free ad-supported clips. Even the lowest $0.99 rental price point may seem too pricey to typical users.
  • Google's YouTube Partners program works well. Why would an indie filmmaker offer a rental to a very limited audience, when the same flick is likely to earn more -- in whole or in parts -- through ad-supported free clips?

The real stumbling block, though, is YouTube's decision to make viewers pay per movie. Blockbuster (NYSE: BBI  ) and are trying to sell a la carte digital rentals, but Netflix (Nasdaq: NFLX  ) is running away with the market because it offers an attractively priced "all you can stream" buffet.

Isn't that the model YouTube should be following? Instead of selling rentals one at a time, YouTube should be pitching premium accounts where folks pay $5 or $10 a month to stream all of its rentals.

In Netflix fashion, such a service from YouTube couldn't be only about streaming. Customers seem to prefer that feature as one part of a grander service. Premium YouTube accounts could include enhanced community features, navigational perks, and social goodies, with a chunk of the premium revenue distributed to filmmakers and studios providing premium rentals (prorated accordingly, relative to views).

YouTube needs to be careful here. Its rental program can become a liability if it creates confusion -- as it has and will. The site can never alienate freeloadeing users, who will always make up the overwhelming majority of its visitors. However, now that even its nearest rival -- Hulu -- is apparently ironing out a premium plan, YouTube can't afford to play a poor hand here.

Will premium rentals on YouTube ever work? Share your thoughts in the comment box below.

Google is a Motley Fool Rule Breakers choice., eBay, and Netflix are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended a bull call spread position on eBay. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz is ready to officially classify himself as a clip-culture junkie. He does not own shares in any of the stocks in this article, except for Netflix. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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  • Report this Comment On May 05, 2010, at 11:25 AM, Patricia013 wrote:

    Netflix is a favorite topic of mine. I gush about it to anyone who will listen. After a horror of a period with Blockbuster I switched to Netflix and cannot say one bad word about their service. I even have the Roku box now so I can either watch a movie on my computer or on my TV. Its wonderful and far as I can see, nothing comes close. There are a variety of movies I can rent from my cable company one at a way, that money adds up and is put on my bill each month. Netflix has the right I'd like to see them stream ALL their movies and do away with the mail service ;-)

    Happy Netflix customer

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