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Subscription models are booming business, and the need for subscription billing solutions has never been greater. In particular, OTT video platforms continue to increase in popularity. YouTube has just entered the OTT fray by introducing its own subscription video on demand product called Red.

"YouTube Red already has 10 shows in the works."

How will Red work?
Red won't replace the free version of YouTube that consumers know and love, but it will provide an opportunity for users to stream content without advertisements. In addition, YouTube will join Netflix, Amazon and Hulu in creating its own scripted content. The U.S. pilot launched on October 28. According to CNN Money, YouTube Red already has 10 shows in the works that will be available to subscribers starting in January. In addition, subscribers will have access to access exclusive content from YouTube stars that will only be available to paying members. YouTube will charge subscribers $9.99 per month for these perks.

"Consumers are embracing paid subscriptions for ad-free content at an incredible pace," Robert Kyncl, YouTube's chief business officer, said at a press event in Los Angeles Wednesday, Time reported. "[This] marks an evolution in our desire to give fans more choice and features that they love."

In addition to gaining access to ad-free content and unique YouTube programming, subscribers will also be able to save videos to view offline, much like Spotify Premium members can do with music. According to Time, mobile users will also be able to play videos while they browse other apps on their devices. If the turn to subscription billing works out for YouTube, there's a chance Red could become a major presence in the OTT video space. YouTube is run by Google, which is a powerful player in the digital space and will likely be able to fund high-quality programming to compete with the existing options.

Why subscriptions?
In the past, YouTube has made most of its revenue from advertising. However, even with its much-boasted 1 billion viewers, YouTube doesn't turn a profit, though it does manage to break even, The Wall Street Journal reported. Introducing a paid streaming service may enable the business to earn additional revenue. The move toward paid programming may also help YouTube reach new audiences. Right now, it's primarily known as a space for teenagers. High-quality shows may bring in fresh demographics.

Given the direction other video platforms have taken, it's not surprising YouTube would implement its own subscription platform. However, subscription billing is smart from a business standpoint because it provides more consistent revenue to supplement advertising. Subscriptions are also convenient for customers and are an easy way for companies to predict revenue.

One of the main challenges in introducing a subscription service in addition to free content is making sure the paid version provides enough value to keep subscribers interested. It seems like YouTube has successfully differentiated its products to make the value clear to customers.

Most of all, YouTube's switch to a subscription billing model demonstrates how powerful this format has become. With the right subscription billing platform, many other businesses can take advantage of OTT too.