Google (NASDAQ:GOOG) announced on Tuesday that it will add movies from Twentieth Century Fox for purchase on Google Play and Youtube. The company has taken several steps in recent months to improve its content offerings and focus more on increasing user engagement on its platforms. (See Google Buys Frommer’s To Increase Content Offerings).The deal with News Corp’s (NASDAQ:NWS) Fox will bring popular shows such as Family Guy, Glee, and Modern Family to both Google Play and Youtube. We think these hit shows can increase the number of users on these two platforms and will help drive page views per user on Youtube. Additionally, the content from this deal is likely to excite Android mobile and tablet users, who use the Google Play store to purchase media and applications.
New Content to Drive Youtube Views
Youtube has a relatively sticky user base as its average page views per month per user were approximately 120 for 2011. We think that popular content like Family Guy and Glee, which had over 8 million viewers during its premiere, can be a catalyst in driving growth in the number of page views per user on Youtube.  We expect an increase in this driver for newer episodes, primarily because these shows don’t become available immediately on competing services such as Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) Prime. Additionally, this service is especially important for tablets and mobile devices as users will be able to download movies and shows beforehand instead of having to stream them over relatively slow data networks.
However, since both Play and Youtube are likely to charge money for each episode or season, Google will face stiff competition from Hulu, Netflix and Amazon Prime, all of which offer unlimited views of a variety of shows for a monthly fee. This is especially relevant for PC users with high speed connections as they have no problem with streaming and don’t need to download media before consumption.
We currently have a $661 price estimate for Google, which is approximately 10% below the current market price.Notes: