YouTube is hitting the pause button on its Hollywood expansion.
As Netflix Inc. and Amazon.com Inc. pour ever-larger sums into TV and movie production, Google is holding spending at current levels for its YouTube Red streaming service for the next two years, people with knowledge of the matter said. That’s leading producers to question the company’s strategy.
Google often makes multiple investments in the same industry and waits to see what works. YouTube, in particular, has revamped its video strategy repeatedly as parent Alphabet Inc. tries to develop paid-subscriber businesses. Now it’s pushing into entertainment on three fronts: with YouTube Red, with a live video service called YouTube TV and with a new music streaming product.
“YouTube Originals are a driving force for YouTube Red, and we have a full slate of Originals already planned for 2018 and 2019,” Robert Kyncl, YouTube’s chief business officer, said in a statement. “While we don’t comment on speculation regarding our budgets, you’ll see us continue to invest heavily in original programming as we ramp up our overall efforts to promote YouTube Red over the next year.”
YouTube plans to spend a few hundred million dollars on TV shows and movies this year, said the people, who asked not to be identified discussing the company’s plans. While that sounds like a lot, a flat budget means the company risks falling further behind Netflix and Amazon.
YouTube is one of the three “big bets” that Google Chief Executive Officer Sundar Pichai has cited as the company looks for future growth. The video site generated an estimated $15 billion in sales last year but has yet to establish more than a foothold in paid services.
On a Feb. 1 earnings call, Pichai highlighted new deals for a low-cost alternative to cable TV — dubbed YouTube TV — but made no mention of YouTube Red, the on-demand streaming service first introduced in October 2015. YouTube TV, which offers a bundle of live TV channels for $40 a month, has signed up an estimated couple hundred thousand subscribers since being introduced last year.
YouTube is also about to roll out a new music service, which has been receiving a lot of resources. YouTube CEO Susan Wojcicki recently referred to Red as a music service, which only added to the confusion.
“That’s the first time I’ve ever heard you characterize YouTube Red a music service,” Chris Williams, the head of children’s media company Pocket.watch, said at the Code Media conference this month.
Run by engineers, Google has struggled to carve out a large role in entertainment beyond hosting other people’s programming.
YouTube was one of the first major tech companies to fund original shows, seeding 100 channels from online creators and celebrities like Amy Poehler and Jay Z. The results were mixed but led to the birth of several popular outlets, including SourceFed and AwesomenessTV. YouTube funded a second round of channels before ending the program in 2013.
The company then shifted from funding original video to building a paid service, called Music Key. YouTube hoped to sign up customers with features like commercial-free and background listening. The service was designed to attract music fans willing to pay a monthly fee for certain features they didn’t get for free.
At the same time, the clout of YouTube and its cadre of online creators continued to grow. Advertising sales on the video platform soared and online YouTube influencers like Michelle Phan began to turn up in ad campaigns, Hollywood movies and live events. Several ended up making shows for Netflix, Amazon and Hulu.
YouTube changed the name of Music Key to Red in 2015, and once again began funding original video series to attract subscribers. The company started by pairing online creators with established Hollywood producers.
Susanne Daniels, a veteran TV executive, joined YouTube from MTV in July 2015 to oversee original programming and began looking to back more traditional entertainment. YouTube bid for movies at film festivals and bought TV shows based on movies such as “The Karate Kid” and “Step Up,” both of which are popular on the video site.
But few YouTube originals have been breakout hits or received sterling reviews even with the surge in investment. In the past year, a couple of series have been marred by controversy due to the behavior of their stars.
YouTube has a backlog of projects it’s already acquired and plans to announce new shows in coming weeks. The company is also sitting on programs it purchased for markets in which YouTube Red isn’t yet available. Red hasn’t expanded as quickly as initially intended because of delays in obtaining music rights, but YouTube is planning a major international expansion later this year. Still, some partners are scratching their heads.
“I have a real problem understanding the YouTube originals strategy,” said Williams, whose company Pocket.watch works with YouTube stars.