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YouTube Takes a Tip From Vimeo

By Daniel Sparks - May 9, 2013 at 8:30PM

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Let content creators charge money for their videos? Great idea, says YouTube.

Vimeo, a YouTube-like streaming video platform, announced an open self-distribution service, called Vimeo On Demand, on March 12. The service allows Vimeo PRO members to create and sell their works directly to their audience. Google ( GOOGL 0.62% ), apparently, liked the idea. Several media outlets are now asserting that Google plans to soon allow content owners on YouTube to charge subscription fees for their audience to view their content.

A smart move
If Google follows through with this, it's really win-win for all parties. Think about it.

  • The move presents high-quality content creators an opportunity to monetize their videos.
  • YouTube's audience of 150 million daily visitors will now have access to more high-quality entertainment.
  • Google will be able to better monetize video content without increasing the quantity of ads.

Google could have taken the Netflix ( NFLX 0.40% ) and Amazon ( AMZN -0.00% ) route, investing heavily in original content and paying a fortune for up-front content license deals. Amazon Studios, for instance, recently launched 14 exclusive, original content pilots. And Netflix? Its popular original series, House of Cards, reportedly cost the company between $3.5 million to $4 million per episode, or about $100 million for 26 episodes. But don't fret -- Netflix CEO Reed Hastings assures investors that the company is spending less than a double-digit percentage of total revenue on original content -- 9% maybe?

Maybe original content and license deals will, in fact, work out extraordinarily well for Amazon and Netflix. Or, investors may never see the fruits of millions spent. Meanwhile, Google avoided the risk entirely by choosing the broker position. Just like Google profits from the spread between advertisers' bids and the fees Google pays them, YouTube simply takes a percentage of the fees content creators decide to charge. In both cases, the risk falls on the advertiser and the content provider, respectively -- not on Google.

The beginning of something bigger?
Will this move by YouTube have an impact on Google shares? Probably not. Vimeo pays out 90% of its revenue from Vimeo On Demand to creators. Likewise, YouTube will probably also pay out the majority of audience fees to content creators. Furthermore, though YouTube's 150 million daily active visitors is substantial, the company doesn't have a transactional relationship with viewers.

Though the move definitely doesn't have any immediate impact on the value of Google shares, it could be the first of many moves by Google to find more creative ways to monetize the world's largest streaming video platform. Who knows? Maybe it's the start of a new age of incentive-driven, high-quality content that could disrupt traditional content providers forever.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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