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Netflix, boasting roughly 62 million subscribers, spends a good deal of money on both contracts for existing content and exclusive premium content, most of it being brand new and filmed or created just for Netflix. In 2016, in fact, that amount is projected to be $5 billion. This content does a fairly good job of attracting new users and retaining current ones. Along with incoming price hikes, this should lead to a fairly profitable future for Netflix. Some analysts say this will be to the tune of $8.7 billion in gross profit for 2016. If $5 billion is earmarked for new content, this leaves $3.7 billion of wiggle room before the streaming service ends up posting a net loss for the year. To say that they’re doing well would be putting it lightly; as of this writing, they’re the most subscribed-to streaming service in the world.
YouTube isn’t doing too badly, themselves. Even with YouTube Red in its infancy, they’re expected to post $9 billion gross revenue this year. With their profit sharing setup with content creators being a 55% deal in favor of the creators, that means they’ve laid $5 billion on the table for 2015, if the $9 billion figure is correct. Analysts are predicting year on year growth in the area of 17%, putting YouTube’s gross profits at $20 billion for 2020. Applying that to 2015, this means that they should see about $10.5 billion in 2016, nearly $5.8 billion of which will be lining content creators’ pockets just to account for ad revenue sharing. With new original content brewing for YouTube Red and YouTube supplying things like studio time and licensing deals, it’s not hard to see how the remaining $4.7 billion can quickly diminish. These secondary sources of spending are expected to increase to compete with the likes of Netflix and Hulu, as well as draw more users to YouTube Red.
YouTube is expected to bring Alphabet 5% of their profits for 2015, which will rise as more subscribers come to YouTube Red and the gross profit rises. This will take time; the way YouTube is set up inherently imposes a fairly low net profit margin to begin with and investing in new services will quickly take the wind out of the sails of total profit figures. With year on year growth as projected, YouTube is expected to put an extra $3 billion net profit in Alphabet’s pockets for 2020 despite the revenue sharing agreement and paying for new content, depending on how much investing YouTube may want to do. With YouTube Red bringing YouTube into the premium subscription world to compete directly with Netflix, it’s anybody’s race to 2020 and largely will depend on how many users are willing to jump on board and stay on board.