The Wall Street Journal reports that Google's
There are great risks. There are also great opportunities.
The downside is that YouTube's brand could take a hit. Visitors may be confused or even scared away after they see price tags on studio content, and find themselves tiptoeing nervously through the free offerings.
The upside is that branching out from its ad-supported-streaming model would go a long way toward justifying Google's $1.65 billion purchase price of YouTube. The site attracts more than 100 million unique visitors a month in the United States alone, so it's a big deal if even just 1% of users warmed up to the concept of paying for fresh movie releases.
Can you serve two masters in digital streaming? Well, maybe. Netflix limits its streams to mostly older catalog titles, but it offers them to active DVD subscribers at no additional cost. Meanwhile, Apple and Amazon charge for their rentals, but Apple's App Store offers evidence that free and pay can co-exist in the same platform.
Still, if YouTube does go through with this, Apple and Amazon are as good as toast in terms of digital video. Sure, Apple markets its videos to iPod buffs, and Amazon has brokered deals to stream through set-top device makers, including TiVo
Netflix may appear to be sheltered from YouTube's actions, since its digital library consists of a fraction of its DVD titles that it offers at no additional charge. However, what happens to Netflix subscribers who are already spending time on YouTube? What if they decide that they would rather stream four or five mainstream movies from YouTube a month than go through Netflix? Both services would be competing for a finite number of entertainment hours.
There's another trap for Netflix lurking in YouTube's plan: What if it's a hit? If studios know that they can collect $2 to $3 through YouTube, how likely are they to sign less lucrative deals through Netflix? As Netflix pushes for fresher content to stream, the going rates may inch higher once there's another legitimate digital vendor out there.
If that isn't reason enough for the studios to back YouTube, they probably deserve the problematic trend of fading DVD sales.
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Longtime Fool contributor Rick Munarriz is ready to officially classify himself as a clip culture junkie. He's a shareholder of Netflix and TiVo. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.