The great reinvention of YouTube continues at Google (NASDAQ: GOOG ), with a
new focus: video on demand. A report earlier this week at The Wrap said YouTube
would begin offering Hollywood blockbusters for rental and purchase through a
new video-on-demand service. The initial lineup of partners includes Time
Warners (NYSE: TWX ) Warner Brothers, Comcasts (NASDAQ: CMCSA ) Univeral
Pictures, and Sony (NYSE: SNE ). Studios like Lionsgate (NYSE: LGF ), which
already provide a large number of archival movies for free streaming on YouTube,
will begin offering new films as well. This new initiative would be the first
time Google and YouTube would go toe to toe with Apples (NASDAQ: AAPL ) iTunes,
Amazons (NASDAQ: AMZN ) digital movie store, and the many other digital video
storefronts that rent downloadable and streaming movies in the same window as
DVD releases. This wont be a game-changer for YouTube. Offering rentals is
simply what YouTube needs to do to stay relevant in the video market. Even
Facebook offers rentals following a recent partnership with Warner Brothers.
That doesnt mean Google cant make money off of these rentals, but it will need
to leverage the best of YouTube to distinguish its service from the many
competitors out there. Here are three ways Google can evolve its video-on-demand
YouTube service into a profitable venture: Subscriptions It cant be emphasized
enough how important it will be to offer a subscription-based option for renting
movies through YouTube. Googles audience is already aware that YouTube exists
and that it can be used to watch full-length movies. But that audience wont come
to YouTube for individual movie rentals why go to YouTube when they already
have their Time Warner cable box at home and an iPhone in their hand? The key is
to offer a premium subscription that would give users unlimited access to a
number of newly released films for a monthly fee. Make it higher-priced than
Netflixs (NASDAQ: NFLX ) famous streaming subscription plan and only offer
access to certain movies for one month after theyve been released. The high
price will appeal to studios while the premium content appeals to audiences.
User commentary There is nothing quite so horrifically incendiary as a YouTube
videos comments section, but the popularity and ubiquity of user feedback on the
service is easily one of its greatest resources. By making user commentary and
feedback an active (albeit risky) feature of its video-on-demand service, Google
has the chance to leverage its community to grow business in ways that iTunes
and Amazon cant match. For example, let audiences watch a stream of user
comments while watching a rented movie. An old trick that worked well for
building YouTubes amateur video content could effectively distinguish its
for-pay Hollywood content. Make rentals available across platforms Its essential
that each video-on-demand rental be made available on all devices that can
access YouTube for the rentals duration. Somebody who pays to rent The Hangover
2 through a web browser will need to be able to pick up their Android phone or
iPad and immediately continue watching the film. This sort of cross-device
continuity has been extremely helpful for Netflix. Google can beat Netflix at
its own game, however, by letting users simultaneously view a rental on multiple
devices. As of this writing, Anthony John Agnello did not own a position in any
of the stocks named here. Follow him on Twitter at @ajohnagnello and
become a fan of InvestorPlace on Facebook.
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