YouTube is reportedly testing a new hub to give consumers the option of watching free TV streaming channels supported by advertising.
The move, which was revealed by the Wall Street Journal, gives YouTube, a subsidiary of Alphabet Inc., the opportunity to enter the lucrative market of ad-supported streaming channels. The video-sharing platform achieved revenue of $28.8 billion in 2021 and has over 2.6 billion users.
The service would function in the same way as cable TV. Consumers would be able to choose from various channels with content such as reruns of popular TV shows. The explosion in the popularity of online streaming is exemplified by the wide range of options available to consumers. Streaming services such as Netflix and Amazon Prime Video currently dominate the market with over 200 million subscribers each.
Reacting to the shift in consumer behavior
The popularity of consuming entertainment online has led to a paradigm shift in the sector. Recognizing the popularity of online gaming, Apple Inc. launched Apple Arcade in 2019 and Netflix has acquired independent game studios to boost its offering of online games. This is a reaction to the boom in online gaming with games such as Call of Duty: Warzone achieving over 3.8 million downloads in December 2022.
The shift online has given rise to increasingly innovative solutions to deal with the behavioral changes of consumers. While video games made the transition from amusement arcades to consoles at home, bingo is attempting to recreate the tradition of bingo halls online. With the game of bingo becoming digital, creative ideas include the introduction of live bingo to appeal to players who are accustomed to playing the game at home. This has resulted in an immersive experience for players involving live presenters, who interact with bingo players, while wins are celebrated with airhorns, confetti, and victory dances. The entertainment industry has shown that is able to adapt to changing consumer habits.
The agility of the sector means it is well-placed to take advantage of the ad-supported streaming model as a source of lucrative streaming revenue. This comes amid the decision by Netflix to introduce a new cheaper plan which is the basic plan, but featuring ads, for $6.99 per month. This is compared with the original basic plan, notoriously ad-free, priced at $9.99 per month. However, the ad-supported tier of the streaming service’s subscription has got off to a slow start, perhaps reflecting the customer perception of Netflix as an ad-free service.
The lucrative ad-free streaming sector
YouTube has no such issues as customers already associate the site closely with ads, which consumers accept as a quid pro quo for access to free content. With its free, ad-supported streaming channels, the company will be setting its sights on direct rivals in the segment such as Roku and Pluto TV. S&P Global Market Intelligence forecasts that the advertising revenue from ad-supported streaming channels will grow to $9 billion by 2026 from $4 billion in 2022.
YouTube has confirmed that the hub is part of an experiment with a limited number of viewers to measure the level of support for free, ad-supported streaming channels. If the hub proves to be popular, we are likely to see the online video platform become a major player in the ad-supported streaming segment.
