YouTube Said to Plan 'Unplugged' Online TV Service for 2017

YouTube is working on a paid subscription service called Unplugged that would offer customers a bundle of cable TV channels streamed over the Internet, people familiar with the plan said.

The project, for which YouTube has already overhauled its technical architecture, is one of the online video giant's biggest priorities and is slated to debut as soon as 2017, one of the people said. YouTube executives have discussed these plans with most major media companies, including Comcast Corp.'s NBCUniversal, Viacom Inc., Twenty-First Century Fox Inc. and CBS Corp., but have yet to secure any rights, said the people, who asked not to be identified because the talks are private.

YouTube, a unit of Alphabet Inc.'s main Google Internet business, is pursuing subscriptions for premium video to compliment the largest ad-supported video site in the world. YouTube introduced its first paid subscription service, Red, last fall. Unplugged would bring more premium content onto YouTube's web service and mobile apps, grabbing more viewing time and generating more non-advertising revenue.

YouTube has been working on an online cable package since at least 2012, one of the people said, but these plans have taken on new urgency in the past few months. Christian Oestlien and Jonathan Zepp are among top YouTube executives working on Unplugged, the people added. Apple and Amazon are working on similar proposals, while Dish Network and Sony have already introduced online TV services.

YouTube's interest in a live TV package has been reported in the past, but this the first time the name and details of the plan have emerged. YouTube declined to comment.

"We aim to provide more choice to YouTube fans more ways for them to engage with creators and each other, and more ways for them to get great content," Sundar Pichai, Google's chief executive officer, wrote in an letter to Alphabet shareholders last week. "We've started down this journey with specialized apps like YouTube Kids, as well as through our YouTube Red subscription service."

YouTube has discussed different ways of packaging TV channels, the people said. In one scenario, it would build a bundle of channels with the four US broadcast networks and a smattering of popular cable channels, a concept known in the industry as a skinny bundle. This is similar to a proposal Apple has discussed with media companies for some time.

Like Apple, YouTube has struggled to secure all the channels it wants at a desirable price. YouTube wants to sell a package for less than $35 a month, the people said, but large media companies expect new providers to pay more per channel than existing partners Comcast and AT&T Inc.

"CBS is essential to any skinny bundle," CBS Chief Executive Officer Leslie Moonves said at the company's investor day in March, adding that the company would net "more dollars per subscriber than the current larger bundle."

YouTube has also discussed offering a collection of less-watched TV channels and creating smaller groups of channels around themes. A YouTube Unplugged comedy bundle might include three or four TV channels such as Comedy Central, while a lifestyle bundle might include the Style Network.

YouTube would charge one subscription for the main bundle, and extra, smaller monthly fees for these theme-based groups, one of the people said.

Using this approach, YouTube could show it is capable of bringing new viewers to many of these second-tier channels, a major concern for large media companies that depend on TV for most of their profits. If YouTube can make it work, media companies may be more open to including more-successful channels later, one of the people familiar said.

With the number of subscribers in decline for cable channels such as Walt Disney Co.'s ESPN, Time Warner Inc.'s TNT and Viacom's MTV, media companies are hoping skinny bundles can bring back customers, especially young ones.

"There is a strong consumer demand for the skinny bundle of 15 channels to 30 channels," Moonves said. "Many viewers would rather pay for only those channels they actually watch. "

While Apple, Amazon and Google have frustrated media companies over the years with on-and-off content negotiations, they are more popular among young consumers than any cable company. These technology giants also have a large reservoir of customers buying their devices, and each sells a set-top box to stream video from apps like Netflix Inc. and Hulu.

With tech companies placing more emphasis on TV, and media companies looking for new distribution, executives are more optimistic about concluding negotiations, the people said. While executives at Disney had previously been wary of skinny bundles, demanding caps on the number of subscribers any such service could have, Chief Executive Officer Bob Iger has since said it is important for its ESPN sports channel to be in these packages no matter the number of customers.

Still, media companies resist any plan that doesn't include their top channels. Dish took Fox's four non-news networks in a recent deal for its Sling TV product, which also includes channels from Scripps Networks Interactive and Turner Broadcasting System Inc.

Analysts question whether Dish can continue to sell Sling for $20 a month without deals for the most-watched TV networks CBS and NBC. Dish secured the rights for the online TV service over many years, and still has yet to get everything it wants.

Consumers may feel the same way. As tech giants explore ways to bring traditional, live TV to the web, viewers are flocking to on-demand services like Netflix, Hulu and Amazon. Hulu, owned by Fox, Disney and Comcast, also plans to expand its offering and sell an online TV service with live channels.

"I don't know how much demand there will be for these packages," said Barton Crockett, an analyst at FBR Capital Markets. "The Internet is setting the ground work for the possibility of consumer adoption of skinny bundles at a level we haven't seen before, but for now the numbers are pretty small."

© 2016 Bloomberg L.P.