YouTube Red Goes Live With Ad-Free Music, Videos

Updated from Oct. 22.

Alphabet's (GOOG) (GOOGL) YouTube subscription service, known as Red, went live on Thursday.

It's unclear how many of YouTube's millions of users will decide to pay $9.99 per month for an ad-free version of its enormously popular video and music platform. It's likely Google doesn't know either. But when your audience accounts for roughly one-third of all Internet users in the world, even a small slice is likely to generate a handsome business.

"The folks at Google want to put some structure around YouTube, and tap into whatever percentage of their user base is willing to pay for it," said Paul Verna, an analyst at eMarketer in an Oct. 21 phone interview. "When you're dealing with the kind of scale that YouTube has, something as small as 1% or 2% is still going to make a pretty big difference."

As first outlined in a blog post, YouTube Red allows users to play its many videos offline or in the background while surfing to other web sites.

The site will also sync with a forthcoming YouTube Music app that Google promises will "start you on a personal journey through one of the richest music catalogs; just sign in, tap a track you love, and see where your music takes you."

But the big attraction is no advertising. That means no pre-roll or mid-roll banner ads or search ads. None of it. Kind of like watching Netflix. No clutter. That's bound to appeal to some people.

Google's impetus for YouTube Red, of course, is making money off of a gigantic user base that has largely been watching videos and listening to music for free.

When it comes to videos and music, YouTube is the unquestioned leader -- by a mile. YouTube doesn't get specific about the size of its audience, describing its as more than a billion users who watch hundreds of millions of hours each day on the Web site, generating billions of views.

That's especially so in music. Even as Spotify, Pandora (P) and Apple (AAPL) Music compete for music streaming devotees, the fact remains that most people go to YouTube to listen to songs.

Reaction to the initial announcement was mixed. Comments on a variety of Web sites ranged from those exclaiming that that the price was too high to those proclaiming that they'd gladly pay for a better-curated version of YouTube that will include premium content.

Price is certain to be a factor, especially considering that much of YouTube's user base is comprised of young people who may not even own a credit card let alone be willing to pay for Internet content.

YouTube Red could also suffer from streaming subscription fatigue. In the past year, the number of subscription-based online services has ballooned. Netflix (NFLX) and Hulu have been joined by Time Warner's (TWX) HBO NOW, Amazon (AMZN) Prime, CBS's (CBS) Showtime, Viacom's (VIAB) Noggin and so-called "skinny bundle" offerings such as Sling TV from Dish Network (DISH) and Vue from Sony (SNE) .

As for video content, YouTube plans to feature entertainers who have become stars on the platform, producing content that won't be available on the free service. Less clear is what kinds of content YouTube Red will license from major media companies such as Time Warner, 21st Century Fox (FOXA) or Disney (DIS) .

But ultimately YouTube doesn't need a huge number of its current users to subscribe to make the offering a success. Pandora users who subscribe to the Internet radio service's ad-free offering number between 3% and 5%, Verna estimates. Google is likely banking on the same.

Additionally, the costs for launching the subscription service and maintaining it are likely to be comparatively small given the YouTube is already a functioning business, Verna said.

"Google doesn't have to invest in something huge to make this happen," he said. "For YouTube, this is found money."

Shares of Mountain View, Calif-based Alphabet have gained 44% in 2015, and 153% over the past five years.

More from Technology

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Elon Musk's Latest Twitter Tirade Is the Dumbest Thing on Wall Street

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Flashback Friday: Amazon, Chip Stocks, Memorial Day

Some Companies Are Already Feeling the Effect of GDPR

Some Companies Are Already Feeling the Effect of GDPR

Experts Break Down GDPR Risks for Investors

Experts Break Down GDPR Risks for Investors

Netflix Ready to Surpass Disney as America's Most Valuable Media Company

Netflix Ready to Surpass Disney as America's Most Valuable Media Company