Google plans overhaul of YouTube to compete with Netflix

Google is planning a major overhaul of YouTube that will enable it to provide streaming full length television and video content. The Mountain View search engine giant has reportedly allocated $100 million for the initiative to acquire content, finalize licensing agreements and execute the requisite technical challenges. Google plans to create channels such as “Sports” and “Drama” within YouTube containing original, professionally produced content that is proprietary to Google. According to the The Wall Street Journal, Google and YouTube executives have held meetings with Hollywood talent agencies such as Creative Artists Agency, William Morris Endeavor and International Creative Management to discuss the creation of original content. Google’s play to enter the video space is motivated by an effort to increase the amount of time spent by users on the site and thereby increase advertising revenue. Moreover, the company may decide to obtain additional revenue by offering select content to users on a paid or subscription basis. Google’s apparent decision to compete directly with Netflix signals intensified competition in the online streaming content space spearheaded by cloud computing vendors such as Amazon and Google that have the IT infrastructure to deal with the bandwidth considerations of delivering significant volumes of content to users on a daily basis. Amazon Prime, for example, offers its members access to 5000 streaming movies for an annual membership fee of $79.

Wedge Partners analyst Martin Pyykkonenn notes that Google’s plans to revamp YouTube constitute a significant threat to Netflix because of the sheer omnipresence of YouTube across virtually all online platforms. That said, Netflix has thus far proven to be an unprecedented market leader in video content acquisition as evinced by its recent finalization of a licensing agreement with Lions Gate Entertainment Corporation to stream seven seasons of the TV series “Mad Men.” So far, YouTube has been less than successful in acquiring licensing rights to longer video content. Nevertheless, the stock price of Netflix has dropped significantly over the last week. Netflix’s shares rose today by 2.52% to close at $233.92 though the share price has fallen as compared to $239.97 at the close of April 6.