The reaction was muted when Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube unveiled its Red paid service. But the company's recent meetings with Hollywood royalty regarding content are turning some heads.

The company plans to create 10 original YouTube Red movies, the first to be released on the service in 2016. Alphabet is also looking at producing TV series, much in the vein of competitors Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) Prime, Hulu, and Time Warner's HBO.

In this video clip, The Motley Fool's Chris Hill and David Kretzmann explain where the company's recent moves might lead and the advantages YouTube has over its competition in the video-on-demand space.

A full transcript follows the video.

 

This podcast was recorded on 12/3/2015.

Chris Hill: Let's start with the interesting news about the latest in the battle for the living room. Executives from YouTube are reportedly meeting with executives in Hollywood to discuss licenses for new video content, new movies, new television.

YouTube, I don't want to say they quietly rolled out Red, which is their premium video service, but it wasn't loud. It wasn't a big, splashy rollout. And I think they're looking at providing more value for anyone who wants to pay $10 a month for what, at the moment, is just a promise that we're not going to serve up any ads. If you're Netflix, if you're Amazon Prime, if you're Hulu, how nervous are you right now?

David Kretzmann: I wouldn't be too nervous at this point, but it's definitely something to watch because when you have even other players like HBO Go and different things as cable TV is increasingly unbundled, and you have more online streaming options, the competitive landscape is definitely intensifying.

But I think YouTube might recognize that they need to boost the value proposition if they're going to get people to move from consuming YouTube for free, or just watching ads -- that's the only price you have to pay at this point to use YouTube. But they need to boost that value proposition if people are going to pay $10 a month, which is what they could pay for Hulu or Netflix or other services like that. So, you know, they're looking at releasing 10 original movies and TV shows using their YouTube stars, their home-grown content. They'll start releasing those in 2016.

Now, they're looking into licensing TV shows and other movies, which is what Netflix and Hulu and Amazon and all those other players are doing. So, it'll be interesting to see. YouTube does have the advantage through Google, which has their Google Play store. Google already has some relationships with those studios licensing movies and TV shows. So, YouTube does have that advantage here as they get started.

Hill: We talk from time to time about Larry Page and Sergey Brin and the incredible company they've built with, I guess we now have to call it Alphabet. But part of what they've done is assemble a pretty phenomenal team of leaders within their universe, and one of them is Susan Wojcicki, who heads up YouTube. And I read a profile of her a couple of months ago, and what was striking to me was not just how talented and what a great leader she appears to be. She appears to be very much the person for this job.

But also, what an opportunity that YouTube represents for Alphabet because they haven't really cracked the code yet. And maybe this is it. Maybe this is the move where they've looked at the landscape and said, "You know what? Netflix is onto something. We've got deep pockets. We can buy content." Little tougher, though, if you're looking to create your own original content.

Kretzmann: Yeah. It'll be interesting for YouTube in this transition. I sort of picture YouTube as a place where if you're thinking of a video, that's where you go to search. So, they could really personalize this and benefit that way.

If they can bring TV shows and movies, and take advantage of the things people are searching for. Because I think, more so than Amazon or Netflix, at least for me, if there's something that's just a quick search of a movie or show or anything else, I'm going to YouTube. So, they're definitely attracting a lot of people. They have a very engaged and active audience. So, there's definitely potential here.

Whether or not Red is the answer, we'll see. But I think it definitely makes sense that they need to bolster the content that they have. So, this move is understandable.

Hill: You've gotta be pretty happy if you're a TV studio or a movie studio, the idea that YouTube could come knocking on your door and say, "Well, we've got an entire bag full of money, let's talk about what you have in your content library."

Kretzmann: Yeah, life is good. It's the holidays.

Chris Hill owns shares of Amazon.com. David Kretzmann owns shares of Amazon.com and Netflix. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon.com, 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.