YouTube seals deals with top music labels, moves towards paid service

The YouTube app logo seen on a smartphone in a picture illustration.
The YouTube app logo seen on a smartphone in a picture illustration.PHOTO: REUTERS

LOS ANGELES (BLOOMBERG, AFP) - YouTube signed a new long-term agreement with the top two music labels, promising stronger policing of user uploads of copyrighted songs and paving the way for a new paid service after two years of tumultuous negotiations.

Universal Music Group said on Tuesday (Dec 19) that its deal with YouTube will give artists more flexibility and better pay. Sony Music Entertainment also signed a new agreement, according to people familiar with the matter. The Tokyo-based parent company declined to comment.

The accords establish royalty rates between YouTube and rights holders for professional music videos and user-uploaded clips, and pave the way for YouTube to introduce a new paid music service early next year. Warner Music Group, the third major label, signed a new deal with YouTube in May.

YouTube expects to convert some of the millions of people who listen to music for free on its video site into paying subscribers. That would help strengthen its relationship with the major label groups after years of tension over whether the Google-owned site was paying enough to copyright holders. 

Universal, owned by Vivendi SA, got control for the first time over what appears on ad-supported channels and persuaded YouTube to improve scanning for user uploads that include copyrighted content, a person familiar with the matter said. Some songs and videos will only be available on the paid service, differentiating it from the free service, the person said.

YouTube is one of the most common ways people all over the world consume music, and one of the most important promotional organs for managers and record labels. Yet the site and its parent company Google, a unit of Alphabet Inc., have struggled to persuade consumers to pay for music.

Paid services Spotify and Apple Music have spurred a recovery in the music business, converting people who listened for free or bought the occasional album into monthly subscribers. American music industry sales grew 15 per cent in the first half of 2017, according to the Recording Industry Association of America, while global sales grew 5.9 per cent, according to the International Federation of the Phonographic Industry.

Record labels have pilloried YouTube for a lax approach to copyright and insufficient compensation of artists, arguing sales would be growing more quickly if they generated more money from YouTube.

Universal and Sony operate both recorded music and publishing divisions, and their label groups represent both in negotiations with YouTube.  It is unclear how long YouTube's new deals would last. Warner Music's agreement with the video site was shorter than normal to allow for flexibility in the future, according to a May memo from the label.

YouTube and the record labels have had to overcome disagreements over the sharing of advertising revenue, the features and music available to free users and viewers outside the United States. But YouTube is so popular that labels would rather work with the service than pull their music off.

The major music groups can now turn their attention to Facebook Inc, owner of the world's largest social network. Facebook has been talking to music groups for more than a year about licensing rights for user-generated video, and, potentially, professional videos as well.