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YouTube hopes homegrown stars, original content will lure paying subscribers

YouTube star PewDiePie gestures on the red carpet during the Social Star Awards 2013 at Marina Bay Sands on May 23, 2013 in Singapore.
YouTube star PewDiePie gestures on the red carpet during the Social Star Awards 2013 at Marina Bay Sands on May 23, 2013 in Singapore.
Suhaimi Abdullah/Getty Images

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If you’re under the age of 35, you might not recognize this guy:

PewDiePie is the online persona of Felix Arvid Ulf Kjellberg, a 25-year-old Swede with one of the most popular channels on YouTube. His silly videos and video game walkthroughs rake in millions of views and he currently has more than 30 million subscribers.

But PewDiePie and other YouTube celebrities will have to sign on to the company's new subscription service to continue their popular public channels. YouTube's new "freemium" service will be similar to Spotify, where free content will be accompanied by ads and paid subscriptions will be ad-free. 

But YouTube may have an uphill battle, as most users are already accustomed to watching videos with ads for free on the site.

Can YouTube leverage its massively popular stars like PewDiePie and original content for a subscription service, and get users to start paying for videos just to skip the ads?

For more on what YouTube is planning with this new subscription model we called up Lucas Shaw, an entertainment reporter with Bloomberg Business.

Interview Highlights:

What convinced YouTube that it could make a go of a subscription service?

YouTube operated without competition for almost a decade, then in the last couple of years you have a lot of people trying to steal part of its business, either by another free ad-supported platform like Facebook, which has tried to make deals with a bunch of creators and media companies, or a subscription service like Spotify, which is starting to get into premium, short-form video. So part of it on YouTube’s hand is defensive, not where it feels it can succeed, [but] where it feels it needs to succeed.

Subscribers would pay for a commercial free service but then everyone else would still have access to YouTube content with commercials, is that right?

Right. It’s a "freemium" model, similar to Spotify with its music, where there are just additional features and perhaps additional programming you get if it’s paid. There are certainly some doubts about it because why would someone pay when the YouTube free [service] is already pretty great.

Content providers who account for over 90 percent of YouTube viewing have signed onto the paid service. But YouTube doesn’t have TV deals with networks like Fox and NBC and CBS. Are those deals essential for making this work? What are the hurdles for getting the TV networks onboard?

YouTube certainly doesn’t think they’re essential. They have more than 90 percent of what people watch signed up. So from YouTube’s position, [if] you have that much of what people care about on your site, you don’t really need the rest of it — it’s just good to have. There is still time for them to lock in deals with NBC and a lot of these other companies. Jimmy Fallon, for one, is extremely popular on YouTube. It’s a difficult negotiation because the TV networks don’t rely on YouTube for any money, they mostly use it to market their shows. And YouTube doesn’t rely on TV networks for the bulk of their viewing. So it’s a deal that both would like to see happen, but there isn’t necessarily a compelling reason for either one of them to do it.

Original series like “House of Cards” and “Transparent” have put streaming outlets like Netflix and Amazon on the map, so how is YouTube gearing up to compete in that space?

It’s funding a bunch of shows, primarily with talent that is familiar to the young people that watch these YouTube stars. They’re people like the Fine Brothers, who aren’t on-camera personalities but operate a bunch of channels. The main one is one of the 10 largest on all of YouTube...It’s a bunch of these online stars who have anything from 2 to 10 to 20 million fans online, but are sort of anonymous to anyone over the age of 35.

A lot of YouTube traffic comes from some of the so-called “home-grown" celebrities. Recent reports claim that a top YouTube star named PewDiePie made about $7 million in 2014. What does PewDiePie do on YouTube that is so compelling?

PewDiePie plays video games. He’s a huge subculture for gaming online. People go to his channel to hear him make funny asides and comments on different video games. And while people can dismiss it, there are over 30 million people who subscribe and that $7 million figure that you mentioned is just in advertising revenue. It doesn’t even account for anything he can do with sponsors of touring or anything like that. He is an extreme example, a channel with the most subscribers of any individual personality and I think he has 10-15 million more subscribers than anyone else.

Does YouTube have any bargaining over that, in other words do people with popular channels have any choice than to switch to subscription service?

They have “informed” partners that if they don’t opt in to this pay service, their existing channels would become private channels, where you have to approve anyone who can watch it. It’s no longer a  public channel that you can search for. There is some danger for YouTube. I suppose that these people could go off to another platform via Facebook or Spotify, but when you’re someone like PewDiePie, who derives so much of your success and popularity from YouTube, it’s hard to imagine a world where you’re not regularly uploading videos [onto] there.

How are music videos going to be affected by this change with YouTube? What are their plans for handling music going forward?

What's crazy about Google and YouTube right now is that they have three different subscription services in the works, Google has Google Play Music, which is a music service much like Apple or Spotify or Tidal. YouTube has this thing called Music Key that is a music-only subscription service that has been in beta [mode] for several months, but has never been a public facing product. And then YouTube is working on this broader subscription [service].

That’s complicated because for any music based service, the service has to pay the record labels a very large percentage. So how does YouTube expect to pay the record labels and pay the content creator and pay themselves? So, pricing is an issue, rights are an issue. I would guess that eventually the two will be folded into one another because it makes no sense to have two different services with YouTube in the name, but time will tell.

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