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YouTube to switch on paid-for video

Story highlights

  • YouTube plans to start selling subscriptions to some channels on its video platform
  • Google-owned site will compete with cable TV and streaming services such as Netflix
  • The paid-for channels would be launched as soon as the second quarter this year
  • Asked content producers to submit proposals for channels that would charge $1-$5 per month

YouTube plans to start selling subscriptions to some channels on its video platform, throwing the Google-owned site into direct competition with cable television and streaming services such as Netflix.

The company has invited a small number of content producers to submit proposals for channels that would charge $1-$5 per month, according to a person familiar with the matter.

The paid-for channels would be launched as soon as the second quarter this year, the person said. YouTube, which has until now relied entirely on advertising, plans to take about 45 per cent of subscription revenues for itself and give the rest to the channel producer.

"We have long maintained that different content requires different types of payment models," said a YouTube spokesperson. "There are a lot of our content creators that think they would benefit from subscriptions, so we're looking at that."

YouTube has in recent years pushed to make the content on its platform more professional and therefore more attractive to advertisers.

To do so, YouTube allowed companies to create dedicated channels and split the advertising revenues, working with the likes of All3Media, Endemol and BBC Worldwide. MondoMedia, a group that produces off-beat adult cartoons, was the most popular channel on YouTube last week with 6m views and has been seen 1.4bn times since inception.

YouTube's shift into premium paid-for channels raises the stakes in the fast-evolving online video sector, which is beginning to resemble the early days of cable television before it grew into a multibillion-dollar business. The YouTube plans were first reported by Advertising Age.

The site will face competition from a plethora of subscription services that already exist online. Hulu, which is jointly owned by Walt Disney, News Corporation and Comcast, has 3m subscribers and offers a range of TV programming from US TV networks such as ABC and Fox.

Netflix, the world's biggest online video service, has more than 30m subscribers and will this week premiere its $100m adaptation of the BBC series "House of Cards".

Directed by David Fincher and starring Kevin Spacey, the series represents the biggest bet yet on original content made by Netflix or any of its competitors: Hulu and Amazon, which also has a subscription video service, are also producing original content to lure subscribers and differentiate themselves from TV networks and rival online operators.

Google started to make a $100m investment in original content commissions for YouTube in late 2011. The funds are provided to film makers in the form of an advance against future advertising revenues.

According to eMarketer, a research firm, advertising spending on digital video in the US grew by 47 per cent to $2.9bn last year but is still dwarfed by the $65bn spent on TV ads.

Television made up about 40 per cent of total media spending in the US in 2012, according to eMarketer, compared with less than 2 per cent from online video.

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