Is YouTube Google Inc.'s Answer to Cable?

By Markets Fool.com

Though cable companies by the score have pooh-poohed "upstart" entertainment alternatives like Hulu, Netflix, and a host of others, the days of brushing aside the upstarts may be nearing an end. It's no secret that consumers dislike their respective cable providers; the industry consistently ends up at the bottom of virtually every U.S. customer service survey done annually. But with little to no alternative, cable has scoffed at the notion that existing streaming services pose any real threat.

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But if Netflix and Hulu weren't enough to get the cable industry worried, rumors of an Apple (NASDAQ: AAPL) streaming service on the horizon should. And Apple's not alone, it appears. Word has it Google (NASDAQ: GOOG) (NASDAQ: GOOGL) is planning its own entertainment service via its wildly popular YouTube property. As the world's most popular streamer of videos, YouTube seems a natural to expand its lineup of choices, and combined with its other services, Google could become an end-to-end solution for the bevy of consumers who would like nothing more than to kick cable to the curb.

How big is big?
The popularity of YouTube is nearly unimaginable in this age of streaming video. With over a billion users, millions of hours of videos viewed each and every day, and 300 hours uploaded every minute, YouTube is a mainstay of the global online community. As impressive as YouTube's popularity is, perhaps even more incredible is that the number of hours of video viewed is growing by an estimated 50% year over year each and every month.

Though Google CEO Larry Page doesn't break out YouTube-specific revenues, there's no denying it's already a cash-generating machine. With over 1 million advertisers in the fold, estimates that YouTube is expected to generate net revenues of over $1.5 billion this year are, if anything, on the conservative side. The question is: How does Google truly maximize the popularity of YouTube? An on-demand, subscription service.

Word has it
The rumored Apple streaming TV service will pipe popular channels like the three major networks, ESPN, Animal Planet, and Discovery, among a host of others. By contrast, the YouTube video on-demand subscription will offer viewers original content and a wider variety of alternatives, similar to its existing music video service.

Despite the diatribe from the cable industry, the environment couldn't be better for a YouTube on-demand service. The notion of "cutting the cord," has become a familiar theme as consumers look for options to cable, and Google has the infrastructure, and YouTube the scale, to make an immediate impact. And for Google, keeping viewers engaged with an on-demand video subscription service would be just one arrow in its entertainment quiver.

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From soup to nuts
As alluded to in a recent article, the much-ballyhooed Google Fiber may be ready to go mainstream thanks to the recent passing of net neutrality. By opening the door to existing telephone poles and existing infrastructure, installing Fiber won't require the expensive process of tearing up of streets and yards, and the years it currently takes to actually bring to lightning-fast Internet speeds to consumers.

In addition to Fiber, Google is also close to rolling out its own wireless service. In other words, the successful launch of a YouTube on-demand video subscription service could, conceivably, be the final step in Google literally "owning" online usage from beginning to end. Imagine millions of consumers could be logging onto the Internet via a Fiber connection, or Google wireless if they're mobile -- via an Android OS device, naturally -- search for the latest version of a YouTube original-content video, then grab a bowl of popcorn and settle in for a night of streaming.

And Google can even take it a step further. As fans of the search king know, Google can and does collect reams of user data to assist its marketing partners in targeting the right ad, to the right person, at the right time. Now consider the aforementioned scenario: the amount, and the scope, of data Google would collect if it were the source for virtually the entire online streaming experience would be unprecedented. And, most importantly for investors, extremely profitable.

The article Is YouTube Google Inc.'s Answer to Cable? originally appeared on Fool.com.

Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Netflix. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.