Why YouTube riles music labels

They accuse the world's most popular music-streaming service of paying less for songs

WASHINGTON • With the money from CDs and digital downloads disappearing, the music industry has pinned its hope for the future on online song streaming, which now accounts for the majority of the US$7.7 billion (S$10.5 billion) US music market.

But the biggest player in this future is not one of the names most associated with streaming - Spotify, Amazon, Pandora or Apple. It is YouTube, the site best known for videos, which accounts for 25 per cent of all music streamed worldwide, far more than any other site.

Now, YouTube is locked in an increasingly bitter battle with music labels over how much it pays to stream their songs - and at stake is not just the finances of the music industry, but also the way that millions of people around the world have grown accustomed to listening to music: for free.

Music labels accuse YouTube of using a legal loophole to pay less for songs than traditional musicstreaming sites, calling YouTube the biggest threat since song piracy crippled the industry in the early 2000s. The industry has pressed its case to regulators around the world in hopes of forcing a change.

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But YouTube is not backing down, stressing the benefits to musicians of promotion on one of the Web's most popular sites - which allows ordinary users to integrate music into their uploads. YouTube also warns against attacks that could reduce competition among streaming services.

"The industry should be really, really careful because they could close their eyes and wake up with their revenue really concentrated in two, three sources," said Mr Lyor Cohen, YouTube's global head of music, referring to Spotify, Apple Music and Amazon Prime Music. (Amazon founder Jeffrey Bezos owns The Washington Post.)

YouTube revenue is so negligible that I stopped paying attention to it.

INSTRUMENTAL CELLO PLAYER ZOE KEATING, who earned US$261 from 1.42 million views on YouTube, but received US$940 from 230,000 streams on Spotify

The music industry counters it is backed into a corner when negotiating with YouTube - a unit of Google-parent Alphabet - which is mostly shielded by federal law from being responsible for what users post on the site.

"It isn't a level playing field," said one executive at a major music label who spoke on the condition of anonymity because he was not authorised to talk. "Because ultimately you're negotiating with a party who is going to have your content no matter what."

Now, the battle is heating up as the European Union (EU) is expected to release new rules later this year for how services such as YouTube handle music, potentially upending some of the copyright protections that undergird the Internet.

Online streaming works like a digital jukebox, with fractions of a penny paid each time a song is played. The money comes from advertisements and subscriptions.

The EU has formally recognised there is a "value gap" between song royalties and what user-upload services such as YouTube earn from selling ads while playing music. YouTube is, by far, the largest user-upload site.

How such a law would address the gap is still being decided, but the EU has indicated it plans to focus on ensuring copyright holders are "properly remunerated". Even the gap's existence is disputed.

A recent economic study commissioned by YouTube found no value gap - in fact, the report said that YouTube promotes the music industry and, if YouTube stopped playing music, 85 per cent of users would flock to services that offered lower or no royalties.

A different study by an independent consulting group pegged the YouTube value gap at more than US$650 million in the United States alone.

"YouTube is viewed as a giant obstacle in the path to success for the streaming marketplace," said Mr Mitch Glazier, president of the Recording Industry Association of America.

The dispute boils down to what YouTube pays for songs. Musicians from Arcade Fire to Garth Brooks to Pharrell Williams say they earn significantly less when their songs are played on YouTube than on a site such as Spotify - even though many listeners use these services in the same way.

Both YouTube and Spotify allow users to search for music and find song recommendations. YouTube pays an estimated US$1 per 1,000 plays on average, while Spotify and Apple music pay a rate closer to US$7.

Mr Irving Azoff, the legendary manager for acts such as the Eagles, said he has one artist - whom he declined to name - who gets 33 per cent of her online streams from YouTube, but only 10 per cent of her streaming revenue.

Smaller acts see it, too. Zoe Keating, an instrumental cello player, showed The Washington Post a statement from YouTube showing that she earned US$261 from 1.42 million views on YouTube. In comparison, she earned US$940 from 230,000 streams on Spotify.

"YouTube revenue is so negligible that I stopped paying attention to it," she said.

YouTube admits it pays less for songs. But the reason for this disparity is where the two sides split.

The music industry claims YouTube has avoided paying a fair-market rate by hiding behind broad legal protections. In the US, that is the "safe harbour" provision, which essentially says YouTube is not to blame if someone uploads a copy-protected song - unless the copyright holder complains.

This, the industry argues, leads to a costly game of Whac-A-Mole: hunting for illicit song uploads and filing notices with the streaming service.

YouTube says it has the solution: Its Content ID system automatically checks for violations by comparing songs detected in new uploads against a database of claimed songs, capturing 98 per cent of complaints. The company says it averages fewer than 1,500 traditional copyright claims from the music industry a week.

It also points out that it has licensing deals with music labels large and small.

Earlier this year, Warner Music Group - one of the "big three" music labels - signed a new licensing deal with YouTube and a memo from Warner chief executive Steve Cooper leaked out.

"There's no getting around the fact that, even if YouTube doesn't have licences, our music will still be available but not monetised at all," the memo said.

Mr Cooper's complaints surprised Mr Cohen, who worked at Warner until leaving for YouTube last year.

"I never heard that from his mouth during the entire negotiation," Mr Cohen said.

His move to YouTube created waves in the industry. After all, he was famous for taking one of the hardest stands against YouTube when, in 2008, he pulled Warner's entire song catalogue from the video service to protest low song royalties. It was the nuclear option.

And it failed. After nine months and spending US$2 million trying to keep its music off YouTube, Warner capitulated.

Mr Cohen said he was sympathetic to his former colleague's complaints. But YouTube pays US$1 billion in song royalties worldwide each year. Mr Cohen said his company had been hindered by its global reach - advertisement rates are lower outside the US - and its slower rollout of a subscription option, YouTube Red. Song royalties are higher with monthly subscriptions than ads.

"What I'm trying to do with YouTube is be a cheerleader to build a subscription business that the industry can be proud of," Mr Cohen said.

Ms Nabila Hisham, 22, is a music fan on YouTube. Recently, the college student in Kuala Lumpur, Malaysia, has been playing one song repeatedly: Despacito, a charttopping Latin pop remix featuring Justin Bieber. The YouTube video - which has a total of 412 million plays - is a photo of Bieber's tattooed neck. The video is beside the point. For Ms Hisham, it is about the music.

"I'm glad that YouTube exists," she said.

WASHINGTON POST

A version of this article appeared in the print edition of The Straits Times on July 17, 2017, with the headline 'Why YouTube riles music labels'. Print Edition | Subscribe