To the digitally savvy, Netflix and Hulu Plus are synonymous with libraries of movies that can be streamed on demand for a fixed monthly price. YouTube, not so much.
That could soon change as film companies jump on a new YouTube business model that allows them to charge monthly subscription fees for their channels. Previously, YouTube channels could only make money through ad sales.
In recent weeks, three L.A. independent film distributors have launched such subscription channels on the Google Inc. video portal. While YouTube might have come to pop culture prominence thanks to homemade videos of cats acting wacky, it has been making a push into professional premium programming.
Each of the three L.A. channels is charging a few bucks a month for subscribers to watch as much as they want without ads. It’s a gamble.
Daniel March, a former president at film distributor Echo Bridge Entertainment in Beverly Hills, has invested six figures of his own money to launch the subscription Screampix horror movie channel, also in Beverly Hills. He’s confident a niche audience will pay $2.99 a month for his catalog of horror movies: They’re broken down into such categories as Zombies, Very Bad Clowns and Small Town Slayings. He said new subscribers have been signing up every day but declined to give a number.
“We think the opportunity for niche channels is substantial,” March said. “The horror category is underserved.”
He’s hoping to compete with Netflix and Hulu. His service targets a far smaller subscriber base, but it could be a loyal one.
Under the subscription model YouTube takes a cut, widely reported at 45 percent, of each channel’s subscription revenue. It also takes a similar share of advertising revenue.
Joining Screampix is Cinedigm in Century City, which launched a documentary movie channel, Docurama, at $2.99 a month. El Segundo film distributor Gravitas Ventures launched a channel that offers independent films for $4.99 a month.
No interruptions
One reason for the influx of movie channels is that the subscription model takes away the need for advertising. As a result, viewers don’t have to sit through ads as they must, for example, with Hulu’s services. Some viewers prefer that, said Erick Opeka, senior vice president of digital distribution at Cinedigm.
“A lot of documentary aficionados want the full experience without ad interruption,” he said.
YouTube quietly began preparing for the launch of subscription channels earlier this year. The company began contacting rights holders, such as Cinedigm and Gravitas, and asking if they’d be interested in applying to be among the first wave of subscription channels to launch.
March, who left his job at Echo Bridge in February, was looking to do something entrepreneurial and called YouTube, since the site has become a hub for Hollywood. YouTube expressed interest and he started planning his channel.
YouTube vetted him and the other applicants, and the respective film channels shored up content and uploaded videos. Then, earlier this month, they were among some 53 subscription channels that were unveiled, with content ranging from ultimate fighting to Sesame Street.
Many of them carry recognizable brand names, such as National Geographic Kids. Not so for Gravitas. The company distributes a large catalog of independent movies to cable providers’ video-on-demand services and streaming services such as Netflix, but many viewers aren’t aware of the brand.
“It’s a new challenge because it’s more direct to consumer,” said Michael Murphy, president at Gravitas. “We’ve always been a B-to-B brand.”
To get traction, Murphy said he’s marketing the channel as a place to see a lot of movies for a price that is comparable with a single rental on iTunes. The channel launched with about 75 movies, with 10 to 15 more to be added each month.
Murphy said the channel offers curation and quality control. And because many films do not get distribution on Netflix or Hulu, Cinedigm and Gravitas can market their YouTube channels as another distribution avenue for filmmakers.
Cinedigm’s Docurama label has about 1,250 titles. The channel plans to make one-fourth of the movies new or recent releases.
“Netflix is being more selective about the content they’re offering,” Cinedigm’s Opeka said. “They don’t take every documentary that’s made. But these films should be seen and seen ad free.”
March built Screampix from scratch. He began by contacting film distributors and offering to purchase North American YouTube rights – a new category – for various films.
He secured those rights for about 150 horror films, such as “Mother’s Day Massacre” and “Deadly Karma.” The films can be viewed now by the channel’s subscribers in the United States and Canada. However, separate distribution rights are needed to make the programs available for viewing in other countries. March said he’s raising an additional $500,000 to fuel more domestic acquisitions and to purchase international rights.
Uncensored, unedited
He’s hired a handful of people to handle things such as acquisitions, social marketing and programming. It’s a big undertaking, but March believes he’s found a substantial opportunity, partly because graphic horror movies aren’t widely available on mainstream cable TV channels. Screampix advertises that its movies are uncensored and unedited. (For his part, March said he likes to be scared but not grossed out).
The idea for all of the channels is to supplement what is available on TV and it’s seen as a growing opportunity as growth rates stagnate for pay TV subscriptions. Some are even hopeful that Internet viewing could replace pay TV subscriptions on a large scale.
The potential is large, as YouTube boasts a monthly audience of 1 billion. But the site built its popularity as a bastion for free content.
However, March believes he doesn’t need huge numbers by YouTube standards to make his channel work. For example, it could take millions of individual views to generate substantial advertising money. But he said the subscription model can work if he can get tens of thousands of subscribers.
For example, 30,000 subscribers would gross about $90,000 a month. After YouTube took its reported 45 percent, he’d be left with nearly $50,000.
He’s taking the long view and hoping that by getting in early, his investment will grow in value as online video subscriptions become more popular.
“We’re well aware that this is a marathon, not a sprint,” he said.
