Does The Music Business Really Need YouTube?

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We’ve known for months that YouTube will soon introduce its own streaming music service, and in doing so it’s revisiting its licensing agreements with all the major and indie labels. For a monthly fee the new service will reportedly allow users to download their streams to enable listening offline, and also eliminate those annoying adverts that we all hate so much but are so necessary to the revenue stream of the content owners.

The negotiations aren’t going so well on the independent label side though, as indie label associations worldwide are refusing to sign what has been labeled as an unfair agreement. As a result, YouTube is threatening to block all current YouTube content from indie labels that don’t sign the agreement and prevent them from uploading anything new as well.

The indie label’s point of contention is that they’re not being offered the same royalty rate as the major record labels, and what is being offered is reportedly lower than that of Spotify. As a result, the American Association of Independent Music (which represents US indie labels) has petitioned the US Federal Trade Commission to intervene, and the Worldwide Independent Network in London has filed a complaint with the European Commission.

Youtube(Photo credit: clasesdeperiodismo)

That said, YouTube is well within its rights to refuse service to a company that doesn’t agree to its terms as much as a grocer isn’t obligated to lower the price of a single loaf of bread to the same price that a restaurant might pay for a hundred. The difference is that it’s also the same as not allowing you to purchase anything else in the store unless you buy a hundred loafs of bread like the restaurant.

The dilemma here is twofold. First is that YouTube is the number one source of music discovery online and second only to radio overall. Second is that YouTube is quickly becoming a major source of income for all record labels, as each one now has a department tasked with exploiting the service to its fullest.

While the thought is that YouTube will only ban “official” videos uploaded by the labels themselves or those they have claimed via Content ID, the threat is nebulous enough that it’s not known if the ban would also extend to fan generated content as well. Even if it doesn’t, the indie labels still will have no way to monetize all the fan videos using their music without authorization if their accounts are blocked by YouTube.

But does the music industry really need YouTube in the first place? Google (who owns YouTube) bested the major labels without them being aware by slowly becoming the de facto standard for free music consumption, despite the label’s oath to never be caught in another MTV situation where they supplied content but didn’t control the price for it. The smartest decision might have been for the majors not to do this deal at all and instead head for any one of the other 60+ other large video services for a sweetheart deal, or at least not agree to enter into an agreement over a new streaming service that very few seem to want (just 7% of consumers are willing to pay extra for this service, according to the MEDiA consulting group). It was probably too late for that anyway, since YouTube is so established, but there is strength in numbers and now that strength is significantly diminished, at least for the indie labels.

YouTube says that it already has 90% of the music content owners on board, and that the indie labels total the last 10%, so you can pretty much determine that its streaming service is destined to launch with the indie labels or without them. There are still is a lot of alternatives to YouTube available, and now that some of the biggest artists are independent, there’s at least some attraction for the average music consumer to seek them out, should they choose to. The problem is that the public is into convenience, and it’s difficult to not only get the word out that there’s a new repository for indie music, but retrain the consumer to access it from a new place as well.

As a result, it’s looking more and more that regardless of the terms, this is a deal that the indie labels can’t afford to pass up.


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