What Marketers Need to Know About YouTube Red

Watch out, Netflix. YouTube is coming for you—or, at least, it’s trying to.

Last October, YouTube unveiled YouTube Red, a subscription service for U.S. customers that offers ad-free videos, offline viewing, and free access to Google Play Music—all for just $9.99 a month. Now, YouTube is sweetening the pot with its own batch of original content, created in part with homegrown YouTube stars.

This move marks YouTube’s biggest attempt to compete with subscription services that emphasis premium content like Netflix and Hulu. But if YouTube Red’s ad-free model takes off, it could have huge implications for marketers. Let’s take a look at why.

New content

Content premiering over the last few weeks includes Lilly Singh’s documentary A Trip to Unicorn Island, PewDiePie’s reality series Scare PewDiePie, AwesomenessTV’s movie Dance Camp, and Rooster Teeth’s film Lazer Team—with more expected to come from YouTube Creators in the coming year.

Based on this first round of shows and films, it seems YouTube wants to entice viewers who are already loyal to these video creators and willing to pay for exclusive content. It’s not a bad idea; these creators collectively have tens of millions of subscribers. But given that these viewers are largely Gen Z-ers and millennials, the model may alienate other demographics who aren’t interested in spending $10 a month for new content produced by people they’ve never heard of before.

To put that in perspective, the median age of subscribers to Hulu’s ad-free content is 33, which appears to be higher than the target audience of YouTube Red’s content. Also worth noting: Users on Netflix and Hulu don’t need to be familiar with previously published content to fully appreciate the original shows.

As Digiday reported, it’s too soon to tell what impact YouTube Red’s early subscriptions have had on the video platform, but it will be interesting to see if they release any numbers based on this new original content.

Disrupting pre-roll

As of now, marketers have largely supported YouTube by purchasing pre-roll ads, but YouTube Red could potentially disrupt this model. If consumers become accustomed to watching ad-free videos from their favorite creators, they could lose tolerance for viewing videos prompted by pre-roll ads.

Specifically, if Gen Z-ers and millennials start signing up for YouTube Red and watch less free content, it could hinder marketers from reaching them. In September, YouTube’s director of product management told Ad Age that views on product videos jumped 40 percent from 2014 to 2015. And over the course of last year, YouTube continued to develop its ad products, offering brands new call-to-action buttons that made it easier to shop. According to Adweek, some brands were starting to see impressive results from the changes. Sephora, for example, saw an 80 percent increase in brand consideration and a 54 percent increase in brand lift.

YouTube brings in billions of dollars in ad revenue each year. It’s certainly possible that YouTube Red could undermine that income stream.

The future of Red

Right now, the biggest argument for why YouTube Red could succeed is that, unlike other original video providers, it has a built-in network of creators who know exactly what works on the platform. Even though brands won’t be able to rely on ads, they could still try to be part of the content creation process.

If YouTube is prioritizing original content, then the likely next step is for brands to create their own shows for YouTube Red. Over the last few years, companies have gotten more ambitious producing their own branded web series on YouTube with varying levels of success. It’s tough to predict whether a digital video will take off, but at the very least, brands like Nike, McDonald’s, and Glacéau have shown the ability to create video content capable of standing on its own without overt branding.

YouTube isn’t Netflix or Hulu… yet. But the fact that the notoriously free platform is experimenting with a paywall should be enough to keep marketers on their toes. And it should be a sign that it’s time to start thinking about new ways to reach YouTube’s massive audience.