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YouTube’s Pursuit of Streaming Rights Could Impact Competitors

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Content on YouTube Red

YouTube Red (GOOG) offers ad-free short-form videos that are also available on YouTube’s ad-supported version. The subscription streaming service priced at $10 per month also offers music with its YouTube music app (application). The music app is free and ad-free when bundled with a YouTube Red subscription. The stand-alone music app from YouTube bundled with YouTube Red is an attempt by Alphabet to monetize YouTube in a better way.

In 2016, Alphabet’s (GOOG) YouTube Red plans to start offering ten new originals, including movies and series, specifically for YouTube Red subscribers. However, most of these originals consist of people that have become famous on YouTube such as Felix Kjellberg, or PewDiePie.

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Rising popularity of OTT services

The popularity of OTT (over-the-top) services is rapidly growing among users. According to a Digitalsmiths 3Q15 Video Trends Report, citing a survey conducted among 3,153 consumers, 56.3% of users are subscribing to OTT services. That’s a growth of 3.6% year-over-year. About 74.5% of cord-cutters or cord-nevers are using an OTT service.

As the graph below indicates and according to the Digitalsmiths report, Netflix is the most popular service, with 49% of OTT subscribers subscribing to it. Amazon’s Prime Instant Video service ranks second place with 20% of OTT subscribers subscribing to it. About 12.1% of users subscribe to Hulu, and 4.3% subscribe to Time Warner’s (TWX) HBO Now.

Impact on YouTube Red’s competitors

YouTube Red’s pursuit of content streaming rights is likely to affect competitors such as Netflix (NFLX), Hulu, and Amazon Prime Instant Video (AMZN). As we’ve already seen in earlier parts of this series, YouTube Red’s competitors are increasingly pursuing exclusive content streaming rights or producing original content.

Currently, YouTube’s free ad-supported version has both short-form and long-form videos. These videos include music, sports, movies, clips of TV shows, and informational videos. Currently, most media companies have movie trailers or clips from popular TV shows on YouTube, since the global appeal of YouTube provides a ready international audience for media companies.

If YouTube Red does manage to acquire streaming rights to movies and TV shows, it would have both short-form and long-form videos in its content library and across various content genres. That would give it an edge over its competitors and help it grab more subscribers in the process.

Alphabet makes up 2.1% of the iShares Russell 1000 Growth Index (IWF). For an investor interested in getting exposure to the entertainment sector, IWF has a 52.0% exposure to the sector.

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