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7 Reasons Why Google Will Launch YouTube Streaming in Europe

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Despite categorically denying the story, Google has failed to make speculation about its plans to launch a movie subscription service in Europe go away.

That's because the move makes sense. As first reported in last Friday's New York Post and citing unnamed sources, Google "is looking to launch a streaming video service in Europe, in particular the U.K."

The service, the newspaper said, would be wrapped around the YouTube brand and launch into Europe where competition in the movie streaming category is thought to be less fierce than in the U.S., where Netflix with its 20 million subscribers dominates.

The plan was given further credence with suggestions that $100 million had been set aside for deals with Hollywood majors and that the project would be headed by Robert Kyncl, who left Netflix as VP of content acquisition last September.

In response, Google stated it has no plans to launch a European rental service "in the near future" leaving open a suggestion that something maybe being plotted. It would be a logical move for Google and here's why.

  1. The European market is the largest outside the U.S. and its potential for premium online services has barely been scratched. There's a good reason for that, namely the fragmented markets, media landscapes, and languages-as opposed to the more homogenous U.S.-which make, among other things, managing content rights far more complex.
  2. If anyone can crack that nut it is Google, with its huge consumer brand and large pockets. The only current competitor with any scale is Amazon, which recently acquired the remaining shares in the region's-and the U.K.'s-largest movie subs service Lovefilm for $317 million. With Netflix reported to have European expansion ambitions Google may want to get in ahead of its launch.
  3. YouTube already has a small-scale niche content movie service in partnership with the Sundance Film Festival. Last April is also launched the YouTube Store, which offers movie rentals from $0.99 to $2.99.
  4. Google's strategy for YouTube appears to be toward streaming ad-supported premium content. It is negotiating with major sports franchises including the NBA, NHL, and European soccer leagues about streaming live games online. It already has an exclusive contract to stream the Indian Premier League (IPL) cricket matches everywhere outside the U.S. Former Universal Sports chief Claude Ruibal is among those said (by The Guardian newspaper) to be responsible for this plan at Google.
  5. If it can sign healthy deals with and for the U.S. studios including Fox, NBC Universal, and Disney, Hollywood may look more favorably on signing content license agreements with Google for its Google TV product. Hulu backers NBC Universal, Disney, and Fox have banned Google TV from accessing the online site-in part in fear of piracy, in part in fear of undermining their TV ad revenues, and in part because they are wary of the disruptive effect Google could have on their traditional distribution channels.
  6. Connected TV, which is surely the end game for all premium streaming services, is about to take off in Europe. There will be 21 million connected TV displays shipped in Western Europe this year, with more than 80% of TVs sold in the territory capable of supporting internet connectivity within three years, according to Futuresource. By the end of 2010, 5% of households in the U.S. and in the U.K. owned a connected TV. As IP connectivity becomes a standard feature on all top brand sets, the number of households owning a connected TV by the end of 2011 will have grown to an impressive 11% in the U.S. and 13% in the U.K. YouTube is now included on most, if not all, connected TV's.
  7. Content owners are happy to make content available on connected TVs in the transactional on-demand model.  Movie-based VoD services are welcomed (despite a conflict of interest with the VoD movie services available by the payTV industry). According to Alison Casey, head of global content for Futuresource Consulting, revenues from VoD Movies, purchased on a transactional basis are relatively low for the Pay TV industry. As revenues from VoD movies are distributed on a revenue share basis (70% to the content owner and 30% to the service operator) the potential loss of large up front licensing revenues are not at risk.

Unpacking those last points a little is Lesley Mackenzie, Lovefilm's group digital officer. "2010 saw the start of this new distribution mechanism which will become a default feature in TV sets," she says. "In particular we saw a great leap in digital business over the Christmas period on Samsung and Sony connected TVs when marketing around their functionality was strongest."

Lovefilm, which has 1.5 million subscribers, is a predominantly subscription model in which consumers pay for a certain number of physical discs and access to digital content.

"The issue is that people don't like watching movies on a PC, and as soon as we make it available to the TV our business will go up," says Mackenzie. "Currently we are focused on building up subscriptions to our service via the TV, but launching pay-per-view on the TV is the next step." 

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