YouTube Advertises Ad-Free Service – Report

There's no business like the subscription video business.

After a decade of making a living from ad revenue, YouTube is ready to try its hand at the subscription-fee business model. According to a report by Recode's Peter Kafka, the online video company has reached out to content partners to tell them that it's readying the launch of an ads-free version of the site that will be available by paid subscription. Kafka further notes that sources are telling him that the new video service will be bundled with a YouTube music service (already launched in beta) and offered for $10 per month.

Content partners have until October 22 to accept a new terms-of-service agreement from YouTube Inc. After that, partners that haven't signed off on the new ToS will find their videos unavailable on the site. The timing supports another rumored detail reported by Kafka, which is that the new subscription video service is scheduled to launch late next month.

YouTube, which is owned by Google (Nasdaq: GOOG), may have a tough time getting users to upgrade to a paid offering. Despite luring professional and semi-professional content producers to the platform, the site is still best known for its amateur style and do-it-yourself ethos. It's the opposite of a company like Netflix Inc. (Nasdaq: NFLX), which has made its brand about delivering select premium content for a price.

At the same time, YouTube has every reason to want to diversify its revenue stream. Plus, other companies have shown that a hybrid ad/subscription model can work for media consumption.

The best examples are in the music industry where services like Slacker and Spotify offer free ad-supported streaming supplemented by paid subscription packages. In the video space, the experimentation with hybrid models is newer, but the Tennis Channel is one example of a content company successfully generating both advertising and subscription revenue online. (See OTT & the Net New Effect.)

Hulu LLC also recently launched a commercial-free version of its video service for $11.99 per month. (See Hulu Goes Ad-Free.)

As for YouTube, the company has been teasing a subscription service for nearly a year. The latest communication with content partners, however, suggests the company may finally be ready to pull the trigger.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

(3)  |