Alphabet Inc. - Dawn of Red

Alphabet announced the October 28 launch of YouTube Red an adfree subscription offering that will feature some exclusive content from YouTube39s biggest stars including PewDiePie and Lilly Singh YouTube Red will also provide subscribers with a new music service and YouTube39s standard content offering both adfree Our initial take is that YouTube Red may be limited in appeal to superfans of YouTube personalities but at 999 per month YouTube Red provides attractive monetization dynamics and should not cannibalize YouTube39s overall revenue in our view Our three key takeaways include the followingA focused offering with attractive monetization dynamics With YouTube39s viewership growth at 60 YoY in 2Q15 we continue to believe YouTube39s adsupported model maintains a long growth runway However YouTube Red likely provides better monetization of YouTube39s most active fans and should not cannibalize YouTube39s overall revenue Assuming an average CPM of 10 across YouTube adsupported viewing we estimate YouTube Red is accretive to revenue per user by 7month However we believe given a set of assumptions around addressable users and penetration the incremental annual revenue opportunity is likely amplt250mnBorrowing from MTV A major theme of the YouTube Red launch was YouTube39s growing commitment to original content Differentiated from other SVOD scripted originals we believe YouTube is increasingly committed to providing a larger platform for its biggest stars such as PewDiePie 380mn subs Jenna Marbles 153mn subs and The Fine Bros 128mn subs In our view YouTube is increasingly positioning itself as a webbased version of 1980s90s MTV particularly following the hiring Susanne Daniels former head of MTV programming YouTube Red provides attractive economics to top content creators as subscription revenue is split based on viewership share 99 of content creators including major media companies are participating in the new serviceNot competing directly with major SVOD players Focused on expanding the platform for YouTube39s existing pool of talent we think YouTube Red is initially pursuing a differentiated strategy relative to other SVOD services which emphasize bigbudget scripted originals and licensing Hollywood content We believe YouTube Red39s subscribers should view the service as enhancing their YouTube viewership experience as opposed to offering an alternative to content like House of Cards or TransparentCLICK BELOW TO ACCESS RESEARCH REPORTPRESENTATION including important disclosuresAlphabet Inc Dawn of RedThe opinions and points of view expressed in this commentary are exclusively the views of the author and do not necessarily represent the views of MediaVillagecom MyersBizNet Inc management or associated bloggers

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Alphabet Inc. - Dawn of Red

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Anthony DiClemente

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