A few months ago, YouTube launched a new subscription service called YouTube Red. The service combines a full-fledged music-streaming service with a commercial-free YouTube experience. In order to entice users to sign up, the Google subsidiary announced that it's going to start producing original movies and series starring its most popular creators such as PewdiePie and Lilly Singh. YouTube Red is designed to help the company become profitable for Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) investors.
Netflix (NASDAQ:NFLX) seems to think producing series with YouTube talent is a pretty good idea. It recently announced an upcoming original series starring YouTube personality Colleen Ballinger-Evans aka Miranda Sings. The move could help Netflix attract more of the digital-first crowd of young viewers that spend a large amount of their time watching YouTube videos for entertainment instead of TV. YouTube Red meanwhile, may not like the fact that its homegrown talent is going elsewhere.
Shows for 2 million viewers
The Miranda Sings series, Haters Back Off, will likely appeal to a niche audience, and Netflix is quite alright with that. "We make shows for 2 million viewers and we make shows for 20 million viewers," said Netflix content officer Ted Sarandos. This project certainly falls closer to the former category, capitalizing on the comedian's YouTube audience.
Miranda Sings has 5.7 million subscribers to her YouTube channel, and her average video receives 1.5 million views (including repeat views). Netflix has the luxury of acquiring niche talents like Ballinger-Evans because it's uniquely capable of finding niche audiences and serving them content they'll probably like. Additionally, niche content is a lot less expensive to produce than a broad-reaching one-hour drama like Marco Polo.
YouTube, likewise, is essentially full of niche content. Even its most popular creator, PewdiePie, focuses on the "Let's Play" niche, where viewers watch him play video games. YouTube has grown a huge and diverse audience on the back of its niche content. It also has a recommendation engine, powered by Google's AI research, that helps deliver niche content to those most likely to be interested in it.
With the Miranda Sings series, Netflix is encroaching on YouTube's space. That means potential for less time spent watching YouTube videos, which means less ad revenue for both the business and its content creators. YouTube Red aims to mitigate such issues by creating a subscription business model that doesn't rely on view time.
YouTube Red under attack
Netflix isn't the only network to pick up a YouTube star for an original series. In October, as rumors of a YouTube subscription service were still floating around, HBO signed Issa Rae to create Insecure. The Time Warner (NYSE:TWX) subsidiary launched HBO Now last April, and it's attempting to appeal to the broadband-only market.
That market is dominated by young people spending lots of time watching YouTube. The average American between the ages of 13 and 24 spends 11.3 hours per week watching online videos.
There's no doubt that YouTube Red is still a great value for die-hard YouTube fans that also enjoy streaming music. It costs the same as either a music streaming subscription or a Netflix subscription, and you essentially get both. But for casual fans -- the vast majority of YouTube viewers -- it's not a great deal. And with Netflix or HBO beginning to offer content from familiar faces, parents can appease younger viewers with access to content like Haters Back Off or Insecure.
YouTube's originals will be exclusive to Red subscribers, but there's nothing stopping TV networks from poaching its talents and the built-in audiences that come with them. If Haters Back Off or Insecure are successful (however Netflix or HBO want to measure that), YouTube could find itself accelerating its original content productions as it fights to keep talent on its website.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Adam Levy has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Netflix. The Motley Fool recommends Time Warner. 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.