YouTube–The Next Netflix

Many reports about the consumption of streaming media delivered by the Internet were released recently. Nielsen data showed a sharp increase in the use of Netflix (NASDAQ: NFLX). The Nielsen report said that Netflix customers spent and average of 11 hours on the service in December. No other web destination was even close.

The extraordinary thing about YouTube, based on comScore’s information, is that its users spent an average of 283 minutes watching video on the site last month. This is even more than Hulu, at 235 minutes. Hulu offers long-form programs, primarily TV episodes and films. Most of the YouTube video is short, amateurish, and user created.

YouTube and Netflix share something in common. They have emerged as the dominant video destinations on the Internet, although one is a highly profitable enterprise because of its subscription based model. Netflix has 20 million paid subscribers and most have abandoned its DVD-by-mail service for it streaming video product.

It is purely a coincidence that Netflix will use a Google Android based platform to help move its service to portable devices. A new Qualcomm (NASDAQ: QCOM) chip will be the hardware engine for the product. Google has Android and YouTube among its most broadly distributed product lines. YouTube is pre-installed on many smartphones. Netflix is at work to get more installations of its service.

Google believes that YouTube’s future is to market premium content and streaming services to its hundreds of millions of users. The management of the world’s largest search engine company knows that advertising supported content cannot make YouTube profitable. It needs another source of sales which only subscriptions for premium content access.

People who use YouTube are clearly willing to stay on the site for long periods. YouTube’s business plan puts it on course to battle Netflix. YouTube is large enough to do what Hulu and Blockbuster have not been able to do. Netflix may finally have a worthy competitor.

Douglas A. McIntyre