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New Details of Alphabet's Move Into Original Content

By Andrew Tonner - Feb 14, 2016 at 8:21PM

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Alphabet recently revealed plans to produce new original content around some of its most popular stars, a trend Netflix and Amazon investors should watch in the coming months.

Source: YouTube.

For Alphabet (GOOG 5.20%) (GOOGL 5.11%) and its shareholders, the popularity of YouTube remains more a cultural success than a financial one. For its investors' sake, hopefully it won't always be that way.

So far favoring a strategy of user growth over monetization, YouTube has begun to shift its efforts toward generating profits from the third most popular website in the world, as a recent series of leaked plans helps demonstrate.

Inside YouTube's talent land grab
According to a recent post on its corporate blog, YouTube will begin unveiling its first swath of original programming, dubbed YouTube Originals, on Feb. 10. The first roundup of YouTube Originals will feature three feature-length movies and one video series from four of YouTube's most popular vloggers (video bloggers). Specifically, they are:

  • A Trip to Unicorn Island, which documents Lily Singh (7.9 million subscribers) and her global tour while struggling to practice the life lessons of personal happiness she preaches on her popular YouTube channel.
  • Dance Camp, a full-length motion picture from YouTube video producer AwesomnessTV (3.3 million subscribers), which basically looks like a dance-themed Pitch Perfect.
  • Lazer Team, a feature-length sci-fi comedy, from YouTube production company Rooster Teeth (8.5 million subscribers), where a group of four friends from a small town unknowingly stumble into a battle to save the planet from aliens.
  • Scare PewDiePie, a reality adventure series that follows top YouTube vlogger PewDiePie (41 million subscribers), as he encounters "terrifying situations inspired by his favorite [live] video games."

If you didn't recognize any of those names, you're not alone. However, the massive audiences these vloggers command speaks to YouTube's ability to attract younger audiences, especially millennials, a fact the company hopes it can use to drive subscriptions to its YouTube Red content service. This also helps demonstrate why Alphabet remains a top threat to streaming services such as Netflix (NFLX 5.03%) and (AMZN 3.58%) Prime streaming.

A unique threat to Amazon and Netflix
Alphabet's strategy here is simply a different twist on the original content that has helped fuel huge subscriber gains at Netflix and Amazon. The company hopes that backing some of its most successful stars with more expansive production resources will create content that millennials will be willing to pay for, as part of its YouTube Red subscription service.

Source: YouTube.

The threat for Amazon and Netflix is that, unlike competing with cable companies whose subscribers tend to skew older, Alphabet's YouTube better caters to cord-cutters. So in terms of fighting for a core audience, Alphabet's move into original content both plays to its platform's own strengths, content creators, which threatens to crimp a major source of potential customers for Amazon and Netflix.

Beyond original content, Alphabet's YouTube Red service also enables subscribers to stream all YouTube videos, including music videos, without commercial interruptions. It also allows subscribers access to various news and video game steaming videos. Additionally, the service allows for offline music playback. At just $9.99 per month, the overall value proposition, again especially for millennials, appears quite strong.

So while we don't have any hard data at this early stage to support the thesis, Alphabet's move deeper into original content on YouTube appears to be a key trend Netflix and Amazon investors will want to monitor in the coming quarters.

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