Majors and YouTube: 2016 could be the year of the standoff
Even though there have always been tensions between major labels and YouTube, the two parties have thus far always found a way to work together, in spite of issues such as low revenues per view and Google’s laissez-faire attitude towards tools that plug into YouTube’s API to provide “free” music services.
Now it seems like the majors are ready to put real pressure on YouTube as their contracts with the Google-owned company come to an end, the Financial Times reports.
According to MBW, Universal Music’s contract with the online video giant expired at the start of the year, and has been rolling on a month-to-month basis. So far, it seems like the two parties are still far from a deal and UMG may even be contemplating a future where YouTube is marginalised.
The other two majors are also due to renew their contracts with the video giant this year.
The growth of subscription services such as Apple Music, Spotify and Deezer and the arrival of new players like Tidal and SoundCloud to the market is giving the music industry a reason to be cheerful. However, majors continue to view YouTube as a key reason why some users won’t upgrade to a premium streaming experience: why pay when almost everything is available for free?
The crux of the issue is that the revenues generated by ad-supported services are still tiny compared to those generated by the subscription market, even as global revenues generated by the digital advertising market as a whole continue to rise at a vertiginous pace.
YouTube’s argument is that the revenues it generated for music rights holders to date are substantial, amounting to more than $3 billion, and that in spite of labels’ hopes that YouTube users will turn to subscription services if the running flow of music on YouTube is stopped, the fact is that only 20% of consumers will ever be willing to pay for music.
The problem with YouTube's argument is that Spotify generated $3 billion as well (up until 2015, the figure will be higher now) with less than around 10% of the user base that YouTube has. In addition, most of those revenues came from its premium subscribers, which means that much of those $3 billion was generated by the equivalent of 2-3% of YouTube’s total base.
It is then easy to see why labels feel there is a lot more room to grow in the streaming market, even if there most likely is a natural ceiling to the number those willing to pay $10 per month.
YouTube tried to crate a subscription offering with YouTube Red, but so far it seems like adoption in the US has been minimal. This may also have contributed to the souring of the relationship with labels, who were probably hoping that YouTube’s huge footprint could translate into substantial subscription revenues if only just a small percentage of users was to subscribe to the premium offering.
On the other hand, the question is whether labels can create or provide an alternative to YouTube: if that channel is turned off without an alternative readily available, users are likely to go back to tried-and-tested methods like piracy, and given the anonymity/encryption tools readily available to anyone in 2016, that battle could be a lot tougher than it was a decade ago.
(Andrea Leonelli)