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YouTube Red: Netflix’s New Competitor in Online Streaming Space

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YouTube Red

There is a new entrant in the online video streaming market and a competitor for Netflix (NFLX)—Alphabet’s (GOOG) YouTube Red. In October 2015, Alphabet launched YouTube Red at a subscription price of $9.99 per month. The service offers streaming of ad-free videos and music, and it allows subscribers to watch videos offline.

In addition, the subscription service extends to the YouTube Gaming app. YouTube plans to start offering ten new originals from 2016 onward, including movies and series, specifically for its YouTube Red subscribers.

YouTube’s entry into this market comes from the rapid growth potential of the OTT (over-the-top) market. According to a Wall Street Journal report, citing Digital TV Research and as the graph above indicates, revenues from SVOD and online TV services could reach $51.1 billion in 2020.

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Content on YouTube Red

Currently, YouTube Red 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. The music app is free and ad-free when bundled with a YouTube Red subscription. The standalone music app from YouTube bundled with YouTube Red is an attempt by Alphabet to improve its monetization of YouTube.

In 2016, Alphabet’s YouTube Red plans to start offering ten new originals, including movies and series, specifically for its subscribers. However, most of these originals feature people who have become famous on YouTube such as Felix Kjellberg and PewDiePie. In December 2015, the Wall Street Journal also reported that YouTube is in negotiations with media companies for exclusive SVOD (subscription video on demand) content streaming rights.

Alphabet makes up 4.9% of the PowerShares QQQ Trust Series 1 ETF (QQQ). QQQ also holds 4.41% of Facebook (FB) and 5.68% of Amazon (AMZN). For an investor interested in exposure to the Television & Radio sector, QQQ has an exposure of 4.37% to the sector.

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