Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

YouTube Takes a Tip From Vimeo

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

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
$2,963.73 (0.62%) $18.34
Netflix, Inc. Stock Quote
Netflix, Inc.
$628.08 (0.40%) $2.50, Inc. Stock Quote, Inc.
$3,523.16 (-0.00%) $0.13

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/08/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.