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Facebook, Vessel to push YouTube to new heights, new models

Facebook, Vessel to push YouTube to new heights, new modelsFacebook is beginning to make inroads into YouTube's domination of the video space—a phenomenon that is likely to only gain steam. But, uptake for Internet video across the board will buoy YouTube's value proposition for a very long time to come, though its business model may change.

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Facebook, Vessel to push YouTube to new heights, new models

Michelle Clancy

Facebook, Vessel to push YouTube to new heights, new modelsFacebook is beginning to make inroads into YouTube's domination of the video space—a phenomenon that is likely to only gain steam. But, uptake for Internet video across the board will buoy YouTube's value proposition for a very long time to come, though its business model may change.

That's the assessment of Alex Pitti, an equity analyst with Instavest, who noted that Facebook is encroaching on YouTube mainly due to its ease of use—it's simply easier to upload content to the social network than to YouTube for personal use.

"It is seamless to upload a video to Facebook to show your friends," he explained in an analysis. "Why upload it on YouTube and then post that video to Facebook? It's an unnecessary extra step."

facebookRight now, 300 hours of video content is being uploaded to YouTube every minute—solidifying its spot at the top of the online video traffic heap. According to Pitti, "This number will likely continue to increase, but Facebook's metrics will increase faster."

According to comScore's most recent monthly Video Metrix, Google Sites, driven primarily by online video viewing at YouTube.com, saw 144.6 million unique viewers. Facebook ranked No. 2 with 90.4 million viewers. Tellingly, Facebook has had a 94% increase in video uploads in the U.S. over the last year. And, it just released a new video API to make video an even more ubiquitous experience on the site. 

However, it should be noted that online video is a rising tide. More than half of the United States — about 188.6 million Americans — watched online video via desktop computer in February 2015, according to comScore. While YouTube is very powerful among millennials (Nielsen estimates that YouTube reaches more 18-34 year old adults than any one cable TV network), there's plenty of room for significant expansion for YouTube watching among older people. 0nly 20% of YouTube viewers are between the ages of 45 and 64.

Going forward, better content is likely to help win this segment over. "Providing user-driven content with bigger budgets makes a substantial difference," Pitti said. "I have watched YouTubers go from a few thousand subscribers to a few million. Their camera equipment improves as well as the production effort. The paid content that will become prominent will be significantly better than what we see on YouTube today."

Pitti also believes that YouTube will gain enough scale and content quality to comfortably make the move to becoming a subscription-based product in the future. In fact, it may be pushed along that path with the launch of Vessel.

Headed by former Hulu CEO Jason Kilar, Vessel has set sail with a mission to re-write the current online video business model. The company believes that the existing paid and online advertising offerings make it extremely challenging, if not impossible, for most independent creators and content owners to realise their creative and professional ambitions.

Accordingly, Vessel will offer access to short-form videos for $2.99 per month, and it plans to offer a significant chunk of that to its content creators. This, the company believes, is sustainable with the addition of a limited amount of advertising.

"We believe that today's online creators make the videos that matter most to the next generation of video consumers," said Kilar said in a joint statement with CTO and fellow founder Richard Tom. "These creators are developing new formats and shows that are authentic, personal, relevant and relatable to millions of fans around the globe ... We believe that we are entering the second era of Web video. All of the amazing things that happened in the first era of online video are just a prelude to what's coming next."

And so, there's a real possibility of Vessel poaching YouTube's top talent, Pitti said. If these creators get paid 20 times more than they get from YouTube, some stars might be tempted to jump from one vessel, as it were, to another.

YouTube's professional networks are already big business, with enough scale to turn a healthy profit through advertising. comScore said that video music channel VEVO maintained the top position r YouTube channels in February 2015, with 42.5 million viewers. Disney/Maker Studios occupied the second spot with 40.7 million unique viewers, followed by Fullscreen with 33.2 million, Warner Music with 25.7 million and Machinima with 25.1 million.

Smaller creators, though, don't enjoy that kind of scale.

"YouTube's free model certainly needs to be amended [and] may need to be changed toward paying content creators more than they are getting now if Vessel puts pressure on YouTube," Pitti noted. "The creation of Vessel isn't all bad news for YouTube, because it will be a test run to see the pricing power Internet video has."

He believes that it indeed has substantial pricing power—and that Vessel's $2.99 monthly price will be raised significantly in the future. But, as the trend toward online content consumption accelerates and as older people move more toward it, YouTube will gain more and more pricing power as well.