It has been barely a decade since Chad Hurley and Steven Chen launched YouTube as a free, and free-for-all, repository for online video. It quickly became the world's largest video streaming service and was bought by Google for $2 billion after just 18 months. Last month, YouTube Red launched in Australia, offering ad-free videos and a premium music app to Australia's already-crowded content subscription marketplace.
Australia represents fertile ground for a content streaming service, in both video and music. Despite our small population, we are a tech-savvy nation of early adopters with a voracious appetite for content. ARIA's figures show that revenues from music streaming services have doubled year on year for the past three years and in 2015 represented $70 million or 20 percent of revenue from recorded music in Australia. At this rate, streaming will be the main income in recorded music by 2018.
The take-up of TV streaming services has been no less profound. Despite Netflix not releasing its own figures, Roy Morgan research estimates the company has over 1 million Australian subscribers. Estimates for nearest competitors Stan and Presto vary, but both have several hundred thousand subscribers.
With such strong take-up, it is no surprise that Australia and New Zealand are the only countries outside the US in which YouTube has launched its service.
While the music streaming market started with a myriad of competitors, including local offerings JB HiFi, Now and Songl, what remains is a race between major global players -- Apple, Google, Spotify, and, to a lesser extent, Pandora.
There has been a clear difficulty for local technology platforms to compete, given the level of investment required for both the technology and content. On the tech side, it takes millions of dollars to build a platform, and just as much each year to add new features and optimise the user experience. Local companies can raise capital for the initial build, but are often unable to attract additional capital or build customer revenues fast enough to compete with international services over the medium-term. Consumers simply end up choosing the platform that works fastest, easiest and best.
As the major music streaming services have virtually identical catalogues, they have not historically competed on content. However, we are starting to see an "exclusives" trend emerge. A recent example is the new Drake album's exclusive window period on Apple Music, which reportedly cost Apple US $19 million. Clearly exclusives don't come cheap, and any local player would find it very difficult to compete in this arena. It seems that exclusives will become a new battleground between Apple, Spotify and Google as they jostle for global supremacy.
The content acquisition equation becomes even more difficult for local players in the online video space. At the beginning of the year, Netflix had 70 million customers across 190 countries -- almost three times the total Australian population. It can therefore defray its content (and technology) costs across a wider audience base than any local player.
While this does not mean the death knell for Stan or Presto, its owners need to recognise the prevailing headwinds and recognise that deep pockets will be needed into the future to remain competitive against the international players -- that now include YouTube.
Unfortunately, the revenue flowing from YouTube in its first decade has not yet been returned fairly to those who create, own and invest in the music. This is the problem known as the "value gap". For example, according to the Recording Industry Association of America in 2015, the US recording industry made more money selling vinyl albums than it received from YouTube.
It is hoped that by offering a paid service, YouTube can start to increase the money it returns to artists and those who invest in them.
After all, music has always been a driver of YouTube. The top 10 most watched YouTube videos of all time are music videos, and it is estimated that over 40 percent of YouTube viewing time is spent on music. And a key plank of YouTube Red is the YouTube Music app.
A subscriber to a service like YouTube Music or other music streaming services has unlimited choice, with access to almost the entire history of recorded music at their fingertips. What to listen to when you have up to 30 million songs at your disposal?
This presents a classic opportunity/threat situation for Australian content.
The opportunity is that it is easier than ever before for Australian content to be consumed internationally.
More Australian artists are breaking into global markets. In previous decades there would be one or two Australian acts that would break every five years, but we can now see five Australian acts break in a single year.
The corollary is it is easier for music from every other international music market to be accessed in Australia, making it harder for local acts to sustain a living on purely the domestic market.
So, an Australian act whose music can attract a global audience can make more money than before. But things are going to get tougher for those acts that rely solely on the domestic market.
This is likely to be exacerbated in future years as playlists becomes more common. If these playlists are programmed out of Silicon Valley and Stockholm, it will be harder for our local artists to get selected, compete and be heard. It is therefore imperative we work with the global services to localise their offerings and playlists.
In online video, we are also seeing this trend of Australians bingeing on the best TV series from around the world. In this context, Australian content will either need to be of sufficient quality to compete with these global series for eyeballs, or offer something uniquely attuned to local tastes, such as sport.
Thankfully, Australian content creators -- musicians, filmmakers, and TV show creators -- produce world-class content. They are increasingly aware that the market for their creativity exists on global platforms alongside the best creators internationally.
The issue for Australian musicians and other content creators in an online world is existential: can they make themselves heard in a globalised content market, and will services like YouTube Red pay them fairly for their product?
So, welcome to Australia, YouTube Red. May you help grow the paid subscription pie, give more money to creators, and help our best musicians, filmmakers and TV shows access global markets. And may the first decade of YouTube Red help more of our local creative geniuses move into the black.Suggest a correction