YouTube TV goes after traditional video

By  Joseph Williams

While Google has only waded into the over-the-top video space with its new limited YouTube TV offering, the platform could change the video advertising business as it expands.

The Alphabet Inc. unit will compete with similar offerings from companies like DISH Network Corp., Sony Corp.’s PlayStation, AT&T Inc., and Hulu LLC. While the service is only available in five markets initially, Google’s broad grip on digital, targeted advertising could differentiate YouTube TV going forward. In addition, the company might have more room on pricing than some others.

The virtual MVPD business so far has attracted two types of players, Moody’s ratings analyst Neil Begley explained. One, there are those in the television business looking for profits from digital subscriptions, like Dish and AT&T and broadening services from other pay TV providers and networks. The second type of companies entering the digital carrier space are “groups with ulterior motives,” as Begley put it, meaning they consider digital television a complement to their other businesses and are not necessarily beholden to profitability on their MVPD products. Google is in the latter camp, he said.

Few in the video business, whether it’s a traditional video provider or virtual MVPD, can match Google’s ability on targeted advertising, according to Begley. If Google can score some network partnerships and start serving ads for those content providers, it could become the preferred advertising manager in the long-form video market, according to Begley. Google could even eventually expand its ad offering to linear TV programming if the technology permits, he said. That would give it a vast new advertising market and a big piece of ad revenue, making profitability of YouTube TV on the subscription side less important for the company, according to Begley.

Considering that the returns on targeted ads can be 200% better than those of non-targeted ads, it’s likely that the video business could shift toward Google’s ad product, Begley said, noting TV is one of the last remaining bastions of media for Google to bring under its advertising umbrella.

Some evolution is necessary, the analyst said. The TV ad business needs change, as network and distributor agreements failing to keep pace with technology, he said. While linear sports advertising remains strong, the disconnect has contributed to soft TV advertising growth and an increased migration of advertising dollars from linear TV to digital channels, according to Begley. Having said that, the traditional video industry’s emphasis on quality content, the expansion of original programming, and the use of innovative advertising technology, could help stabilized the ad growth.

YouTube TV is missing important sports channels like Turner’s lineup, but it does carry local and national broadcast stations and channels from Fox Sports and ESPN, and it includes features that allow fans to follow specific teams across its platform. A source close to Turner’s decision-making process suggested that the company is open to YouTube TV and other OTT distribution where it makes strategic sense, and the content provider will be expanding its OTT footprint over time.

Besides the advertising model, president of video entertainment consulting firm FanTrust Catherine Warren added that the TV experience itself is evolving. Subscription on demand services are expanding rapidly because they allow viewers to watch content whenever and wherever they want, according to Warren.

Meanwhile, “the television experience in terms of search and hardware it’s just so so complicated, whereas you hand me your phone I know exactly where to go and how to use it,” Warren said. “If TV wants to compete with YouTube, and it looks like YouTube wants to compete with TV, I think that would be a very good idea to take a play out of YouTube’s book,” she said. That said, many traditional video providers have rolled out advanced video platforms that allow viewers to consume linear and streaming content across platforms.

For now, YouTube TV’s biggest downside might be its market and device availability, sources suggested.

Several observers pointed to YouTube’s current 1 billion-plus user base as a major advantage, noting if the company can capture any meaningful fraction of that it could launch ahead of its competitors. However, as Warren and other sources noted, those users are short-form content consumers using a free service. YouTube’s existing market has not been proven for a virtual TV-like bundle, and the company’s initial device availability is mobile-heavy, not typically the platform of choice for long-form TV content.

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