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YouTube Grows Up: Inside the Plan to Take on Netflix and Hulu

http://styleveryday.com/2017/10/09/youtube-grows-up-inside-the-plan-to-take-on-netflix-and-hulu/

YouTube Grows Up: Inside the Plan to Take on Netflix and Hulu

With a veteran television exec, talent like Demi Lovato and Google’s $86 billion in cash, the platform known for skateboarding videos and tween vloggers wants to join the battle to become a prestige TV player. “I want our shows to resonate in a big way with audiences,” says content head Susanne Daniels. “And once that happens, we’ll be on that list — like it or not.”

Days before Morgan Spurlock debuted his anticipated Super Size Me sequel at the Toronto Film Festival, the documentary already was drawing buyer interest. Netflix made a play for Spurlock’s poultry industry exposé, per sources. Hulu and CNN also were said to be in the mix, but a surprising distributor quickly rose to the top: YouTube. The lights had just dimmed on Super Size Me 2: Holy Chicken‘s Sept. 8 world premiere when THR reported that the streamer would pay $3.5 million for the documentary, committing to a theatrical release and a hefty marketing spend. “YouTube made the most sense for what I wanted to accomplish with this film,” says Spurlock, who is said to have left millions on the table to work with the Google-owned video hub and its 1.5 billion monthly viewers. “You don’t make movies to sit on a shelf and collect dust. You want them to actually be enjoyed by as many people as you can. And their plan is to make this a noisy partnership.”

Indeed, when Super Size Me 2 debuts on YouTube Red, the company’s $10-a-month streaming service, in 2018 after a run in theaters (a distribution partner hasn’t been chosen yet), it will front a small but growing slate of films — among them a documentary from rapper Warren G and a special starring Katy Perry — that YouTube global head of original content Susanne Daniels is hoping will help turn the world’s biggest repository for web video into an arbiter of taste and culture, a player in both the Oscar and Emmy races. “I want the movies that we’re buying to be buzzy and have something provocative to say,” says Daniels, a career television executive who joined YouTube in 2015 to lead its original content push. “It’s easier to support films the right way when they have a really loud and strong point of view.”

That YouTube execs were trolling Toronto for the next big indie hit says a lot about the rise of streaming video services over the past few years. An arms race among cash-rich new players — led by Netflix and Amazon and now including Hulu, Apple, Facebook and, yes, YouTube — has electrified the content business as legacy distribution models continue to fracture (see the 25-year low in box-office attendance this summer). The shift is redrawing the hierarchy of the television industry, where all five broadcast networks saw a decline in total viewers last season while the streamers committed about $20 billion to programming delivered without a cable subscription. This summer, Apple poached Sony TV’s top execs Zack Van Amburg and Jamie Erlicht to help it spend $1 billion making the kinds of shows (The Crown, Breaking Bad) that they once sold to networks. Netflix snapped up uber-producer Shonda Rhimes from ABC with an estimated $100 million deal. And Facebook announced its new video destination along with deals with dozens of production and publishing companies.

If there’s one thing that Netflix’s House of Cards, Amazon’s Transparent and Hulu’s drama series Emmy winner The Handmaid’s Tale have shown, it’s that it only takes one big hit to earn Hollywood’s respect and, in many cases, a subscriber’s credit card information. “If you can offer talent the same level of fame and exposure and pay them the same — if not more — than they get elsewhere, you can get access to anybody,” says BTIG media analyst Richard Greenfield. “There are no barriers anymore.”

Perhaps, but for every Netflix or Hulu, there is an Xbox Entertainment Studios or a Yahoo Screen or an Intel Media, all of which were scrapped after pricey launches. Even YouTube has been here before with its short-lived initiative to offer as much as $5 million up front to everyone from Ashton Kutcher to Jay Z to create their own “channels.” But the latest investments have the Hollywood talent community salivating. “The commitment of resources seems to indicate that this is a long-term game,” says Joe Cohen, co-head of CAA’s TV department. “It’s the most exciting time we’ve been in because of how much opportunity there is.”

There’s certainly not room for half-hearted programming plays in 2017. With nearly 500 scripted series expected this year, breaking through all that clutter isn’t easy. A common refrain as these new buyers take meetings is that each is looking for its Game of Thrones — an all-audience, brand-defining megahit. What that means for each platform is starting to come into focus. While Apple has been on the hunt for a big-budget drama from the likes of A-list creators Ryan Murphy or Vince Gilligan, Facebook is taking a more measured approach — saving Nicole Byers’ MTV comedy *Loosely Exactly Nicole from cancellation and ordering low-budget series from such longtime partners as BuzzFeed and Refinery29.

Where does all this leave YouTube, the site that launched the streaming age in 2005 with user-generated cat videos but now wants to be taken seriously as a prestige subscription destination? During a recent visit with THR at Google’s Mountain View campus in Northern California, YouTube CEO Susan Wojcicki laid out her multipronged offensive: a slate of ad-supported unscripted originals from such names as Demi Lovato (see sidebar), Ryan Seacrest and Ellen DeGeneres, coupled with a scripted push for YouTube Red that combines existing IP (including Step Up: High Water, an offshoot of the dance movie franchise, and The Karate Kid spinoff Cobra Kai) with projects fronted by its homegrown digital stars. Among the shows in the works are a musical comedy with Rudy Mancuso (3 million YouTube subscribers) executive produced by Avengers: Infinity War directors Joe and Anthony Russo, an Anna Akana (1.9 million) drama executive produced by Mark Gordon and a Liza Koshy (11.7 million) vehicle. It even launched its own version of a skinny bundle, YouTube TV, offering access to channels including FX and ESPN over the internet for $35 a month. “Television is changing a lot, and there are opportunities to reinvent parts of it,” says Wojcicki. “We’re going to continue to invest more in it.”

YouTube and Hollywood haven’t always been so chummy, of course. As the original digital video disrupter, the site was a pariah during its early years when uploaded clips made up the bulk of its database. Viacom sued for $1 billion over copyright infringement of footage from The Daily Show and South Park (it was settled in 2014), and the company still regularly wars with the music industry over royalties. So three years ago, when chief business officer (and Netflix alum) Robert Kyncl began to plot the launch of a service that would give users the best of YouTube without the advertising, he knew how important it would be to get Hollywood on board. “YouTube Red was something the creative industry always wanted us to do,” says Kyncl. “I’d been on the receiving end of those calls pretty much every week.”

Enter Daniels, who had spent years tapping into the minds of teens at WB Network and later MTV. Early YouTube Red offerings starring the platform’s biggest stars (think a reality series with PewDiePie) drew eyeballs but not much notoriety. Now that strategy has changed. This summer, YouTube Red went head-to-head with Netflix, Hulu, AMC and Amazon to land Sony TV’s Karate Kid reboot, set 30 years after the coming-of-age classic, with Ralph Macchio and William Zabka reprising their roles. Most involved expected the half-hour Cobra Kai — from Harold & Kumar duo Jon Hurwitz and Hayden Schlossberg and Hot Tub Time Machine writer Josh Heald — to land at Netflix. But Daniels’ aggressive 10-episode straight-to-series offer sealed the deal. Why? “Netflix is breaking a show every other week,” says Macchio. “With the passion that YouTube and Susanne Daniels have, this show is not going to get lost. They want it to be that first big show that puts them on the original content map.”

YouTube isn’t really part of the prestige TV conversation yet, and Kyncl declines to disclose how much the company is willing to spend on its originals business. But sources indicate it’s more likely in the hundreds of millions annually, nowhere near the $6 billion that Netflix pledges. (EMarketer estimates that YouTube ad revenue, which Google doesn’t break out in its earnings reports, will be about $3.5 billion this year, and Google had $86 billion in cash on hand in 2016.) While YouTube is willing to spend like any cable outlet (around $2 million an episode for dramas), say people familiar with its deals, it’s not quite ready to stretch beyond the $5 million an episode of some premium dramas, except for a handful of marquee projects.

YouTube also is said to have beat out others to land the Mancuso project, which has Pitch Perfect‘s Jason Moore attached to direct the pilot. But for other pickups, Daniels and her 30-person staff in the company’s Playa Vista office have had to get more creative. She landed the series reboot of Step Up after running into Lionsgate’s Erik Feig at a New Year’s Eve party. “Whatever was in the champagne that night, the call came in Monday, and it was like, ‘Let’s figure out how to do this,’ ” recalls Lionsgate Television chairman Kevin Beggs. Meanwhile, she piloted the Doug Liman-produced Impulse, based on a novel in Steven Gould’s Jumper series, before ordering it to series. “It’s my preference always to do a pilot,” says Daniels. “But in this crazy, competitive environment — more competitive than I’ve ever seen it before, ever — I don’t always have a choice.”

That competition will only become fiercer as Apple, Facebook and perhaps someday soon Snapchat or Twitter or Instagram get into the premium video game. While a meeting with Netflix, Amazon or Apple may be a creator’s goal among the streamers, persuading a top writer or producer to make the trek to Playa Vista — YouTube’s Hollywood outpost — isn’t as easy. But Daniels hopes that’s changing as she starts to make more high-profile pickups. Agents say the streamer’s hybrid approach of working with both YouTube celebrities and more traditional TV talents has led to some confusion over what the outlet is looking for. However, developing a “brand” of shows is a notion that Daniels pooh-poohs: “Short of choosing a really specific lane to play in, how do you really define ‘brand’? How is Amazon’s brand different than Netflix’s brand different than HBO’s brand different than Showtime’s brand?” She does acknowledge that she is focusing on the 18-to-34 demographic with youthful but edgy fare. On her wish list is a family show with religious overtones (she recently met with Touched by an Angel scribe Martha Williamson), and sources say she also is looking for a broad, multicamera comedy, a female ensemble in the vein of Girls and an action drama that would appeal to YouTube’s large gaming community — in other words, something for each of YouTube’s core demos.

While nearly all of the streamers are competing for awards recognition and prestige, only Facebook, with its 2 billion monthly users worldwide, and YouTube truly can duke it out over sheer audience scale. For now, YouTube has a clear head start on video, with more than 1 billion hours watched daily throughout the world. But through Watch (which currently is only available in the U.S.), Facebook is gunning for a larger slice of the $11.7 billion in ad dollars expected to flow into the digital video business this year.

Already, the two have gone head-to-head on programming. Facebook also considered working with Katy Perry on her 96-hour live stream, but YouTube ultimately landed the ambitious project, which drew more than 50 million views in 190 countries. (Per sources, MTV also bid, but the show would have aired only in the U.S.) “I’m so glad we swung for the fences on that and tried it,” says Daniels. “We need to be thinking about community and interactivity and live and international and all the things that we are that a TV network isn’t.” Witness was the first in a small slate of unscripted originals that YouTube has developed separately from its Red programming and will release outside the paywall in the hope of attracting blue-chip advertisers. “One of the things that I grew uncomfortable with was the fact that we were not creating original content for our biggest partners,” says Kyncl, noting that he’s hoping to tap into the demand that has been created by the nearly 20 percentage point drop in ad-supported originals in the traditional TV business over the past five years as subscription streaming services have flourished.

Plus, there’s the assurance that an ad on a Kevin Hart or Ryan Seacrest show won’t run alongside anti-Semitic, violent or other controversial videos often found on YouTube (and that prompted an advertiser revolt dubbed the “ad-pocalypse” earlier this year). So far, L.L. Bean and STX Entertainment have signed on for DeGeneres’ behind-the-scenes series Show Me More Show. The rate card for the series, which has averaged around 500,000 views per video since its Sept. 19 launch, is said to range from $500,000 to $1.5 million, though other shows have packages that are more expensive. Ulta Beauty is on board for Lovato’s Simply Complicated (Oct. 17), and Johnson & Johnson is the exclusive sponsor of the Seacrest-produced singing competition Best.Cover.Ever.

Talent, meanwhile, has been lured by the potential to reach fans no matter what country they live in. “YouTube is the O.G. of video content on the internet,” says Lovato, the 25-year-old pop star (for those over 40, she’s referring to the “original gangster”). “When they came to me with the idea, I just couldn’t say no.”

But as YouTube sets its sights on higher-profile projects, it risks alienating the community of digital talent who came to fame on its platform (and subsequently helped raise production values and CPMs), especially because projects like the Logan Paul-fronted sci-fi film The Thinning and Joey Graceffa’s reality series Escape the Night are said to be some of the most popular on Red.

Creators are watching YouTube’s moves closely. “It makes sense for them to do both,” says Rhett McLaughlin, one half of hosting duo Rhett & Link, who have both a YouTube Red series (Buddy System) and an ad-supported show (Good Mythical Morning). “This is ultimately a battle for people’s eyeballs.”

Facebook already is exploiting the tension, offering upfront deals to digital influencers to post their videos on Watch, though the social network says it eventually wants to stop funding content altogether in favor of a revenue-share arrangement (the split is the same as YouTube’s, with 55 percent of ad revenue going to the creator). YouTube execs, however, say they won’t abandon the site’s homegrown stars. “We focus on both YouTube native talent and Hollywood talent,” says Kyncl.

Of course, there are quirks to working with a technology company. At YouTube, the main challenge is its uniquely annoying platform architecture, in which each original series must live on a designated YouTube channel. For Step Up, for instance, YouTube is creating a whole new channel, which it will fill out by licensing the original films and offering collections of dance videos. “Some of these things are really new to us and require a whole different approach,” says Lionsgate’s Beggs. “A lot of people who are not normally in the same room together have met multiple times over at YouTube to compare notes.”

One benefit of having all those engineers working behind the scenes, though, can be the troves of data about the intimate viewing habits of billions of people. Daniels came to the Cobra Kai pitch armed with the knowledge that Karate Kid videos had yielded more than a billion views on YouTube. And platforms that rely on advertising typically aren’t as precious about data as Netflix or Amazon. Although YouTube doesn’t release subscriber figures or ratings for Red (the only number that executives have shared is that its first 37 originals have been viewed 250 million times — or an average of about 6.7 million views per show), creators with channels on Red receive monthly reports detailing how long people have watched their videos (important since YouTube shares subscription revenue with its creator partners) and other performance metrics.

In the subscription space, no one seems poised to catch Netflix, which has a five-year head start and series slate that included 43 scripted originals in 2016. But as Netflix and others look to own more of their shows, YouTube (and Apple) could get a boost. “Netflix wasn’t even in the original programming game four years ago,” says BTIG’s Greenfield. “If Apple wants to be a major player, if Google wants to be a major player, this is the beginning.”

Sitting in her Playa Vista office in August after her weekly production update meeting, Daniels contemplates just what it will take to turn YouTube into the kind of platform that gets mentioned in the same breath with Netflix, Amazon and Hulu. “I want our shows to resonate in a big way with audiences,” she says with a gleam in her eye. “And once that happens, we’ll be on that list — like it or not.”

This story first appeared in the Oct. 4 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.

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