The Attraction of YouTube’s Multichannel Networks

Last week we noted that the largest cable companies in the United States now have a larger number of broadband subscribers than they do pay-TV subscribers. A full two-thirds of Americans own a smartphone and 80% of U.S. viewers watch YouTube videos, compared with 78% who watch pay TV.

While it’s still way too early to declare pay TV dead, it is not too early to say that its influence is declining. Cord-cutting has dropped out of the headlines, but in a survey completed by research firm nScreen Media in May, a full 17% of broadband users cancelled their subscriptions to cable TV and 10% said they have never had a subscription. These users are typically younger and are not expected to change their habits much as they get older. From the nScreen Media report:

Millennials [ages 18 through 29] strongly prefer digital media over traditional. They are 24% more likely than average to use Internet subscription services, 20% free Internet video and 14% owned digital movies and TV shows. They’re also 10% more likely to watch home videos. On the other hand, they are less likely to subscribe to pay-TV. 63% say they currently subscriber versus 77% of 30-49 year olds.

Disney has indicated plans to use Maker Studio as a promotional platform for its franchise platforms like Star Wars as a way to attract millennials by improving both distribution and reach of short-form video using Disney-owned characters and stories as well as the company’s substantial production expertise. It could be a potent combination.

As for similar MCNs, Otter Media, the joint media venture between AT&T Corp. (NYSE: T) and privately held Chernin Group, recently paid $200 million to $300 million for a majority stake in MCN Fullscreen. Another well-known MCN, fashion-focused StyleHaul, is reportedly being courted by the likes of Amazon.com Inc. (NASDAQ: AMZN) and Twenty-First Century Fox Inc. (NASDAQ: FOXA), as well as privately held Hearst and Condé Nast.

We can be pretty sure that Amazon won’t be adding channels to YouTube, but it could lift the price for MCNs if it decides to play hard in the space.

The advantages of the MCN are both its lower price tag and its attractiveness to a young audience. Starting a new TV network is far more expensive, and the target millennials may not tune in anyway.

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