Universal Music Group is locked in a chilly negotiation period with YouTube, as the major’s long-running licensing deal with Google‘s platform switches to a rolling basis.
MBW understands that UMG’s licensing agreement with YouTube expired earlier this year, and currently seems a fair way off being re-signed.
UMG has now been rolling on a month-to-month contract with YouTube for most of 2016, and is believed to have put together both an ‘on YouTube’ strategy and an ‘off YouTube’ strategy – the latter very much an ‘in case of emergency’ fallback. (And not a bad negotiating tool, of course.)
Both Sony and Warner‘s deals with YouTube are also due to end in the coming months, MBW understands.
Although the trio of major labels are ultra-competitive at the best of times, we could therefore see some kind of strength-in-numbers negotiation play out this summer.
What do the majors want?
That’s pretty obvious and further covered in a Financial Times article today: they are demanding a fix and/or compensation from YouTube for the growing ‘value gap’ between the amount of consumption taking place on its platform and the cash it’s paying out to music rights-holders.
According to the RIAA, the amount generated by ad-funded music platforms (including YouTube, Vevo and Spotify ‘free’) was smaller than that generated by vinyl sales at retail in 2015.
(Some suggest this is an unfair comparison as it discounts the amount of expenditure needed to manufacture and sell a piece of vinyl compared to a digital stream; a point of view highlighted by new numbers from Australia, which show that on a wholesale basis, ad-funded streaming’s revenues in 2015 far outweighed those from vinyl.)
MBW understands that the argument of YouTube boss Robert Kyncl (pictured inset) during label negotiations relies heavily on the potential growth of the ad market worldwide.
The current total global advertising market, it has been pointed out to labels, is estimated to be worth $450bn a year, with $200bn spent on video advertising (including the trad TV market) and $35bn on audio ads (including the trad radio market).
YouTube’s current user base stretches comfortably beyond a billion users each month, and it believes that if it can continue to pinch consumers from TV, radio and on-demand video platforms like Netflix, masses of ad dollars will eventually follow.
YouTube partners are traditionally paid 55% of gross advertising income on the platform – which is believed to have turned over $9bn in 2015 but not posted a significant profit.
Meanwhile, YouTube argues that in comparable entertainment markets, 80% of all global consumers choose to experience media for free, while 20% pay. (This presumably incorporates TV and radio markets worldwide.)
From the labels’ point of view, that’s all very well, but while subscription continues to generate far greater dollar signs than ad-funded platforms, there is serious concern that perpetuating the breakneck growth of ‘free’ could damage the fragile uptake of paid-for services; a decision that would have repercussions for music rights-owners long into the future.
Meanwhile, all three majors are also pushing for reform to the DMCA rules in the US and beyond, which currently allow YouTube to shirk legal responsibility for copyrighted content on its platform.
The Google company has created the Content ID system to enable rights-holders to identify infringing content and request individual takedowns.Music Business Worldwide