While Netflix (NASDAQ:NFLX) has dominated the subscription-based long-form video market, the streaming service has ignored the shorter videos that have made Google's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube brand a major player.
That may soon change, as GigaOm recently reported that Netflix is considering adding shorter two- to five-minute clips specifically to increase its traffic on mobile devices and smartphones. These shorter pieces wouldn't be the viral videos and user-generated content that has made YouTube so popular. Instead, Netflix would be looking to create shorter excerpts of the long-form movie and video content in its library, Design Manager Dantley Davis said during an event at the company's headquarters last week, the online magazine reported.
Netflix would not be competing with YouTube for content, but it would be taking it on in the battle for eyeballs. If you assume people only have so much time to watch video on their phones and other mobile devices, then the two companies would be fighting over a finite pool of video-watching minutes. If Netflix can make a go of it with shorter videos, then it could steal audience from YouTube, which could cost the company advertising dollars.
What Is Netflix doing?
Netflix is testing offering mobile users scenes from television shows, clips from movies, and pieces from comedy specials. During the test, which is running now, according to Davis, an extra row of content has been added to the Netflix app under the title "Have five minutes?"
Netflix is doing this because most of its content is still being watched on television screens, but the company sees mobile as a potential area for growth.
"As screen sizes are becoming bigger, watching content on phones becomes more natural," Davis said at the event, according to GigaOm.
Still, it's unlikely users would in most cases choose to watch a movie, or even a half-hour television show on their phones -- partially because of screen size and partially because of mobile data caps. Since Netflix's content ranges from around 22 minutes for a traditional sitcom to over two hours for movies, shorter clips might make the service more attractive to mobile users.
How could this hurt YouTube?
With its large library of video and extensive partner relationships, Netflix should be able to leverage its content providers to create an impressive offering of shorter videos. Because it's a subscription-based service and does not sell advertising, the company could offer the clips in a cleaner, ad-free experience than the one offered on YouTube. Netflix would not have the extensive library of adorable kitten videos that its rival offers, but it would have plenty of quality content that could be consumed without ever having to stop to watch a commercial.
That may well appeal to a portion of the audience currently watching YouTube on their phones and other mobile devices. Currently, YouTube's overall audience is well larger than Netflix's, according to Reuters, averaging over 1 billion unique visitors a month. Though Google does not break out revenue for the brand, nor does it confirm traffic numbers, its principal source of revenue is advertising. It's just a well-informed guess, but eMarketer reported in late 2013 that it estimated YouTube would take in $5.6 billion in ad revenue in 2013.
The research firm wrote that it "believes much of YouTube's growth has come from growing consumer demand to view video content across devices."
If Netflix can grow its mobile audience, it could cut into YouTube's. The numbers may be relatively small, but any loss of page views could hurt the video giant's ad sales revenue.
Will it matter?
If Netflix keeps its short clips as a value add for its roughly 50 million subscribers, then it does not have enough potential users to be a major thorn in YouTube's side. The real potential for Netflix to cut into the YouTube audience would be if it decided to make these clips free to non-subscribers -- perhaps as a way to collect emails to be able to market subscriptions.
Making the clips available to a broader audience would create instant headaches for YouTube, and it would also give tens of millions of non-Netflix subscribers a reason to install the company's app. That could deal a blow to YouTube while helping Netflix get its foot in the door with millions of potential customers.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.