YouTube Does It Again: My Thoughts on One of the Smartest Companies in Entertainment Making Another Great Move
The Most Important Story of the Week For 3-Jan-2023
Welcome to 2023! Based on the 2022 success of the Entertainment Strategy Guy (both my newsletter and my columns for The Ankler), I’m looking forward to a great year. I know a lot of the news has been negative, but I sincerely hope my readers have a lot to look forward to as well.
Let’s kick off the new year with a big, big, big story with all sorts of ramifications for the streaming wars:
Google/YouTube won the rights to the NFL’s Sunday Ticket package.
Given that Apple TV+ was the presumed leader for a half a year, this was a big, last minute shift that no one saw coming. And a good lesson in waiting until the ink is dry before spilling digital words on the strategy implications! (Obviously, the NFL and its players have had an incredibly tough week, and our thoughts are with Damar Hamlin and his family.)
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Most Important Story of the Week - Google Buys NFL Sunday Ticket
When I read entertainment business analysis, I always get annoyed when I think an analyst is a “tech head”. Tech heads tend to employ a very crude heuristic in their analysis: “Tech is good; traditional entertainment is bad”. I swear some analysts filter all their coverage through this lens. Netflix? Tech, so good. Paramount? Traditional entertainment, so bad. Prime Video, Apple and Google? Tech, tech, tech, so good, good, good. Disney, Comcast and Fox? Bad, bad, bad, obviously.
My goal—and it’s probably more an aspiration then a lived reality—is to instead focus on the question, “Does this company have a good strategy?” and go from there. As such, I think some traditional entertainment companies are “good”, if I have to use this crude binary, and some are bad. Some tech companies I love, and some I don’t.
For example, while I’ve always felt Netflix is overhyped, I’ve always felt that YouTube is criminally underrated.
Google buying NFL Sunday Ticket rights for YouTube is another smart move from a company with a sound entertainment strategy. So let’s explain that today. Since I haven’t written about Google in a minute, it’s worth reminding everyone of exactly how Google plays in this space.
What Are Google’s Entertainment Ambitions?
In any value chain—meaning the various stops in the supply chain that brings products to customers, see explainer here—the suppliers are on the left, and the customers are on the right. Here’s the video value chain (really a web) I made for entertainment back in 2019:
Google has focused on that right side of the value chain, the parts closest to consumers. For example, it sells devices to connect folks to streaming video, specifically Google Chromecast. Meaning, for some customers, Google is how they interact with all of TV, including the streamers. That said, the global device game is still fairly fragmented, with tech companies (Roku, Amazon and Apple), the TV makers (Samsung, Vizio, etc) or the consoles (X-Box and Microsoft) all vying for marketshare.
First, here’s an estimate of US devices:
And here’s an estimate of global share:
Moving one step “back” on the value chain, YouTube has two “bundlers” that work with their devices, but also on other devices, YouTube Live TV and YouTube Primetime Channels. The former is a linear TV analogue, but delivered over the internet, not through a cable box. (MVPD—multi-channel video programming distributor—is the name for any satellite, cable or broadband provider who sells TV channels. When it’s done through the internet—by YouTube Live TV, Hulu Live TV and others—it’s a virtual MVPD or “vMVPD”.)
YouTube Primetime Channels is Google’s late-to-the-game fast-follow of Roku, Amazon and Apple, where they sell subscriptions to other streamers, while taking a cut. Google also sells and rents movies and TV shows, like Apple’s iTunes and Amazon.
Google also has a “streamer” but one of the most unique streamers, YouTube, since it only features user-generated content and is primarily supported by ads. (It’s ad-free service has north of 20 million paying subscribers globally, for what it’s worth.) It’s almost more of a social network than a streamer. And yeah, unlike YouTube Primetime Channels, I assume everyone knows what YouTube is. Here’s Pew’s survey on the most popular social platforms and look where YouTube lands, even for teenagers:
Instead of a monthly subscription, YouTube is free for the vast majority of users, but it sells advertising on the videos people watch. It’s big. As Nielsen’s the Gauge notes, even on Living Room TV’s, it’s the second largest court of video viewing among streamers. (This includes YouTube Live TV viewing, which is about 1.5% of all viewing.)
(Caveat on music viewing on YouTube: a lot of YouTube’s “viewing” is for music videos. For example, that’s what I’m literally listening to right now. That means many people aren’t watching video, but just listening to music. So the comparison in The Gauge isn’t quite apples-to-apples, since we don’t know how much is being played in the background as music.)
While normally I downplay the role of network effects in entertainment, for YouTube, I do think they exist. If you want to launch a video channel, YouTube is where you’d do it. There are few other viable options.
Notably Google has avoided paying a lot for content. They’ve tried making some Originals, but decided the juice wasn’t worth the squeeze, and focused on YouTube, whose users spend all the money on production for them.
YouTube Live TV Needs Growth and NFL Sunday Ticket Can Turbocharge That
The simple explanation for YouTube buying NFL Sunday Ticket is so obvious you barely need me to write an article on it:
Google hopes NFL Sunday Ticket acquires YouTube Live TV subscribers as DirecTV used Sunday Ticket to gain subs in the 2000s.
Essentially, you just take DirecTV’s strategy, move it forward in time 20 years, and shift to a new distribution method. Note: DirecTV was, back in the day, a disruptive new way to watch TV! (Instead of cable, put a satellite dish on your home to get TV).
In this case, though, I think the fact that YouTube/Google won is more interesting when comparing it to who didn’t: Apple. Specifically, Apple TV+ planned to spend the $2 billion+ (reportedly) to basically give NFL Sunday Ticket away to Apple TV+ users.
Financially, it just makes more long term sense for the NFL to have Google as a partner than Apple. And it makes more sense for Google too. This is where it’s worth pointing out that the economics of streaming (Apple TV+) just don’t compare to the economics of bundling (YouTube Live TV). Right now, YouTube Live TV costs $65 a month. Apple TV+ costs $7. Assuming the margins are similar—and they’re close enough since both businesses are probably losing money right now!—one business is an order of magnitude larger than the other. Meaning getting new subscribers is massively more valuable for YouTube Live TV than for Apple TV+, if consumers have to pay for it.
As much money as YouTube makes in advertising—and it’s plenty!—getting folks locked into a cable bundle could be even more valuable, especially if the monthly cable viewing doesn’t actually cannibalize that much YouTube viewing.
This is just a good reminder for the streaming wars that, if you’re giving away a product for free (or drastically reduced costs) just to bring someone into your “ecosystem”, you better have a damn good, high revenue/margin business to funnel them into.
(There are of course all sorts of antitrust implications for both Google and Apple, as there were for DirecTV. I’d note that Apple—if they had given the product away for basically free—risked blowing up the NFL’s entire business model. $2 billion is a lot of money, but the NFL makes $2 billion from Fox, ESPN/Disney, CBS, Prime Video and NBC too! Apple risked basically $4 billion for their $2 billion, not a great trade from the NFL’s standpoint.)
Caveat: YouTube Primetime Channels Will Sell Sunday Ticket Too
Everything I wrote above comes with a large caveat, from the NFL itself. While Google will offer NFL Sunday Ticket as an add-on, it’s also available on YouTube Primetime Channels as well. Huh? If you can get Sunday Ticket without subscribing to YouTube Live TV, certainly lots of people will take Google up on that offer.
So everything about getting subscriber share is a bit less applicable than the DirecTV analogy, isn’t it?
I have two caveats to this caveat. First, YouTube Primetime Channels is probably a business most folks are hearing about for the first time. (Though I knew they had this business, I didn’t know what it was called. And I do this for a living!) I don’t think Google has nearly as many of folk’s credit cards on file as, say, Apple or Amazon. For Google, getting people buying anything through YouTube is somewhat of a win.
Second, we don’t know the prices for each package yet. Presumably, customers will be able to buy Sunday Ticket though YouTube Live TV for some discount. Probably close to the current $65 a month, with the “a la carte” option costing more. Rumors were that Apple TV+ basically wanted to give Sunday Ticket away for free, and that insistence sunk the deal. The NFL is aware that price sends a signal and doesn't want NFL Sunday Ticket to be discounted too heavily. But we’ll see.