GOOG Alphabet Inc

By Jack Nicas and Shalini Ramachandran 

Google's YouTube on Tuesday unveiled a web-TV service that will offer a package of over 40 broadcast and cable channels for $35 a month, making the tech giant the latest entrant in a race to win over millions of consumers who are shifting away from traditional TV.

The new service, dubbed YouTube TV, is set to launch in the next few months. It will have all the major broadcasters, including ABC, CBS, NBC and Fox, as well as several dozen well-known cable channels, such as ESPN, FX, USA, MSNBC and Fox News.

Google, which is owned by Alphabet Inc., joins a crowded field of companies selling "skinny bundles" of TV channels over the web. They're targeting the rising numbers of "cord cutters," people who cancel their pay-TV connections, as well as "cord nevers," young people who have never paid for traditional TV. Pay-TV executives say there is a market of at least 10 million homes that only subscribe to broadband and not TV.

"There's no question millennials love great TV content," said YouTube Chief Executive Susan Wojcicki. "But what we've seen is they don't want to watch it in the traditional setting."

Other companies offering cable-style online-TV services include traditional operators like Dish Network Corp.'s Sling TV and AT&T's DirecTV Now, as well as new entrants like Sony Corp.'s PlayStation Vue and Hulu, which plans to launch a streaming skinny TV bundle soon for under $40 a month. Amazon.com Inc. has also been discussing plans for its own bundle with media companies.

So far, none of the existing web-TV offerings have been runaway successes, with some, such as DirecTV Now, facing technical hiccups and other issues early on. Analysts estimate that Sling TV, which launched first, has about 1.2 million subscribers today. A big issue for all companies launching skinny bundles is to secure rights to enough major TV channels while keeping the price in check.

For media companies, having at least their big channels included in skinny bundles is a vital hedge against the continuing decline of traditional TV packages. The networks YouTube announced as partners didn't include channels owned by Viacom Inc., including Comedy Central and MTV; Time Warner Inc., including CNN, TNT and HBO; Discovery Communications Inc.; AMC Networks Inc.; and Scripps Networks Interactive, owner of Food Network.

Discovery, Viacom, AMC and Scripps are in talks with YouTube to be added to the service, people familiar with the discussions said. A Time Warner representative had no immediate comment.

"We're always in conversations with partners," said Robert Kyncl, YouTube's chief business officer. He said YouTube doesn't plan to increase the base price of the service if it adds new partners.

For Google, the new service is an opportunity to build YouTube into a bigger contributor to its business and put itself once again at the center of changes in commerce and media consumption.

The company's search engine handles about 93% of internet searches, according to market researcher StatCounter, and its Android software backs 88% of the world's smartphones, according to Strategy Analytics. Its giant ad business accounted for 88% of parent Alphabet's $90 billion in revenue last year.

YouTube users now clock more than a billion hours a day watching its videos, a 10-fold increase from 2012, but the site's financials are unclear. It broke even in 2014, and executives still say growth -- not profits -- are the priority.

The $35-a-month price for YouTube TV is aggressive, given the premium content costs for new entrants into television distribution. Analyst Michael Nathanson said Google will likely be paying about $30 in content costs with its current TV lineup, and if it adds other major channels, it is unlikely Google would run a profit on subscription payments alone.

But he said Google's primary play with YouTube TV is to "break into the in-home and television advertising market," selling targeted advertising in the network ad slots that typically go to cable operators. That could be significant as the company increasingly targets the roughly $70 billion spent annually on TV ads.

YouTube makes most of its money selling ads, but it has also launched a $10-a-month, ad-free subscription service that offers access to premium shows.

YouTube's pitch for the new service focused on subscribers' ability to watch content on any screen -- from smartphones to TVs -- and to record an unlimited amount of content for up to nine months. The company said it would launch the service in the biggest U.S. markets "in the next few months" and expand gradually after that.

A YouTube TV subscription includes access to six accounts with separate login information, but a maximum of three users can watch simultaneously.

YouTube declined to say which markets will receive the service first. It said it has partnerships with local TV stations in New York, Los Angeles, Chicago and Philadelphia.

YouTube said the service will only be available in the U.S.

Write to Jack Nicas at jack.nicas@wsj.com and Shalini Ramachandran at shalini.ramachandran@wsj.com

(END) Dow Jones Newswires

February 28, 2017 18:19 ET (23:19 GMT)

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