YouTube Has Lost the Streaming Media Race

One aspiration Alphabet Inc. (NASDAQ: GOOGL) has for YouTube is that it could compete with Netflix and Amazon Prime. The plan has never worked, and YouTube is so far behind in the premium streaming business that it will never catch up.

YouTube has started to contribute¬†significantly to Alphabet’s revenue. Based on earnings reports, this is nearly all video advertising. It is no wonder ad sales are so robust. Alphabet says YouTube has one billion monthly visitors worldwide. However, Alphabet’s hopes for YouTube were well beyond that of another ad platform like Google is.

The YouTube effort to have a paid streaming video rental service goes back to 2011. However, the beginnings were very modest. The library of movies numbered less than 3,000. Rentals of new releases were $3.99 a title. Older movies rented for $2.99. On the other hand, the list of content partners was impressive and included Sony, Warner Bros. and Universal.

The YouTube rental initiative died. The site continues to have a rental business, barely. The rentals include first-run movies, which cost $4.99 to watch. Older movies still cost $2.99. YouTube does not have a Netflix model for consumers who want to pay one fee for unlimited access to content. It is hard to find the video rental section of YouTube, because it is buried among a large number of other promotions. YouTube’s current paid video initiative is YouTube Red, a service for music streaming and advertising¬†free videos.

No one can say for certain what happened to the YouTube paid premium video business. It was launched over five years ago in the hope that YouTube would be among the largest services, like Netflix, which has nearly 100 million paid subscribers. Alphabet may have reasoned that the cost of negotiating with Hollywood to get the best content would be too high. Another theory is that YouTube visitors were so used to free video that a paid service ran against the grain of the site’s primary mission. Yet another is that Alphabet thought premium video would be a very big revenue contributor.

YouTube’s video rental business is all but dead. It might have competed with Amazon and Netflix. Alphabet certainly had the cash to build a premium video business. Instead it balked and its opportunity is gone.