Analysys Mason: What can Europe expect from the new non-linear TV channels like YouTube's?

Olivier Pascal

Olivier Pascal

In October last year, Google (Nasdaq: GOOG) launched a number of YouTube original content channels in France, Germany and the UK, just one year after launching 100 original channels in the United States. For each of these channels, content will come from a partner such as (to take the case of France) Endemol France, Lagardère Active and Banijay Group.

Although it is still too soon to draw any conclusions on the impact and success of YouTube original channels, there are some key learnings from the experience in the United States.

Out of the 100 channels launched in the United States, about 40 seem to enjoy relatively good audiences (more than 1 million views per week) and will benefit from new investments from Google; the remainder will need to be funded by other parties if they want to continue to exist. Google is to invest a further $200 million in the United States in addition to its initial investment of $100 million.

Some channels have attracted well-known producers, actors or writers, and are good examples of non-linear TV channels which broadcast relatively high-quality content and will be able to compete on the same playing field with programming from traditional broadcasters. For example, the WIGS channel shows TV-quality dramas with actresses like Julia Stiles and directors like Marta Kauffman. David Letterman and Jimmy Kimmel, two well-known American producers, recently announced they will be creating two YouTube channels with partners who include Sarah Silverman and Adam Carolla.

These YouTube channels are not yet mature, but they are starting to attract important advertisers such as Procter & Gamble, Toyota and American Express. However, digital ads still attract only a small portion of advertising compared to traditional TV--$2.9 billion in 2011 according to eMarketer, just 4.5 percent of the $64.5 billion TV advertising market. This is closely linked with the fact that even the most successful YouTube original channels only attract about 1 million views a week, far behind traditional broadcasters, which achieve several million viewers per show per day. We estimate that two to three years will be needed before we will see the first effects of these new channels on TV viewing patterns, and that their impact on the revenues of traditional TV channels will not be important before 2020.

However, in the meantime, while the market develops, the launch of such channels offers a fantastic opportunity for producers and broadcasters. Bearing in mind that typically only one or two formats out of 10 are a commercial success, this new broadcasting platform is a means for producers to test innovative content while limiting their financial risks. However, if the financial details of the deals so far announced are true (YouTube prepays around 30 hours of programs for €1 million in France, i.e. €33,000 per hour), it will be challenging to produce any premium content. Having said that, French TV is often criticized for its lack of creativity and for the fact that French broadcasters mainly purchase bankable formats from the Netherlands, the UK or Israel. The 13 channels that are being launched in France therefore represent a great testing platform for them.

The launch of these new channels seems to be a key milestone of the (r)evolution that the European broadcast industry is facing. Their real impact is, however, yet to be seen. Being at the forefront of the media industry and benefiting from its international presence, Analysys Mason can provide insightful analysis to European broadcasters, policy makers and investors.

Olivier Pascal has more than seven years of telecoms, media and technology (TMT) consulting experience and is based in Analysys Mason's Paris office. He has worked on key media projects with many major players across the media value chain, including developing license frameworks, evaluating a public service broadcaster's revenue and studying new services over ultra-fast broadband networks and their associated business models.

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