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How YouTube’s mission to take on Netflix failed

YouTube has effectively backed the ad-supported business model by putting its most successful original show, Cobra Kai, in front of the paywall.

The company announced the move weeks ago, as new subscription services set to launch by Disney and Apple will make competition unbearable in an already saturated market. Even the undisputed market leader, Netflix, missed new-subscriber targets during the second quarter this year.

Since its creation in 2005, YouTube has been the go-to place for amateurs to share their low-cost content, as well as for companies to engage more directly with prospective customers.

Content such as tutorials, vlogs, unboxings and gameplays have turned the $1.65bn paid by Goggle to acquire the company in 2006, into an estimated $160bn in valuation.

Consequently, YouTube must concentrate efforts on keeping their creators from posting on other similar platforms such as Instagram IGTV or Facebook Watch. That would mean offering the biggest portion of advertisement income to creators, or helping them to channel other income streams like merchandising.

Instead of going to war in the TV streaming market, one where the company is neither the first nor the best competitor, YouTube needs to continue consolidating its leading position in the video-sharing market.

In 2015 the Alphabet-owned company initiated a strategy to take on Netflix. The strategy involved hiring a former Warner president, ordering big-budget series scripts and the construction of a 10,000 square foot studio in Los Angeles.

However, creating new original content to compete with the catalogue that the traditional broadcasters such as HBO, Warner and Disney are bringing to the streaming market, proved to be too expensive an enterprise for YouTube.

Although YouTube is keeping its ad-free music and video streaming service, YouTube Premium, it will look at advertisements as the main revenue source for its new YouTube Original material.

According to analyst estimates, advertisement accounted for $15bn in revenue for YouTube last year. Considering that digital advertising is a market growing exponentially, focusing on making the most of its monthly audience of two billion, looks like the best move for the video streaming company.

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