Los Angeles Business Journal

Big Picture Broadens for YouTube Players

Film firms buy into subscription model. By Jonathan Polakoff Monday, May 27, 2013

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.

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