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Money for nothing: copyright law, YouTube, and the future of music [Part I]

Money for nothing: copyright law, YouTube, and the future of music [Part I]

Money for nothing: copyright law, YouTube, and the future of music [Part I]
October 18
17:57 2018
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This is the first of two pieces on the European Copyright Directive and its potential effects on the structure of the music industry.

The European Copyright Directive has an image problem. Well, at least, Article 13 of it does.

The legislation, which passed through European Parliament in September, and is currently in a consultation phase, is designed to protect content creators from exploitation by the internet giants. Many, however, are not happy.

The legislation has provoked fears online of a “meme ban”, been likened by music industry luminaries to “automatic and systematic censorship”, and, according to seventy influential web figures, “takes an unprecedented step towards the transformation of the internet from an open platform for sharing and innovation, into a tool for the automated surveillance and control of its users”.

Yikes!

But for some in the long-suffering music industry, the legislation promises something else: a way to level the playing field against the world’s undoubted streaming titan, YouTube.

As streaming businesses such as Spotify and Apple Music have developed, fingers have been pointed at Google’s video hosting site and what industry insiders call the “value gap” — the imbalance between the value content hosting platforms extract from music, and what they pay royalty holders.

Streaming payments are not huge. By Alphaville’s reckoning, to earn the US minimum wage, an artist needs 610,465 streams on Spotify per month, requiring a substantial or obsessive fan base. William Stokes, one-third of pop trio Wovoka Gentle (whose latest single featured on the Fifa 19 video game soundtrack) told us streaming money is “more of a bonus than a fundamental part of my income”, a truth faced by many smaller acts.

Yet YouTube pays even less. MIDIA estimate last year it dolled out an effective per stream rate of 0.21 cents to rights holders versus Spotify’s rate, estimated by CNBC as between 0.6 and 0.84 cents.

The reason is part business model, part legal privilege.

As a neutral venue for the world to upload video, YouTube and competitors such as Vimeo have long been protected by “safe harbour” provisions in international copyright law, like the EU’s e-Commerce Directive of 2000. These recognised a value in not hobbling online public (ish) spaces by making companies liable for everything uploaded to them.

The responsibility falls on rights holders to identify infringements (with a lot of help from the respective company). Once spotted, they can instruct the platform to remove a song, monetise it via advertising, or simply collect the analytical data.

As overt music businesses, Spotify and Apple Music, must negotiate their licenses up front — typically a fee per song streamed. Artists have long argued YouTube’s ability to negotiate after-the-fact give it extra leverage versus its competitors, hence the value gap. But YouTube’s model also offers two other advantages.

The first is choice. By virtue of its content being user generated, YouTube has a much wider selection of both music and performances. Whether you’re after an overwrought cover of Elton John’s Tiny Dancer or the audio from Rage Against the Machine’s first ever gig, it is rare for a YouTube search to not be a met with an answer. This is reflected in users listening habits: Mark Mulligan at MIDIA Research estimates 22.5 per cent of the views for the top music videos come from versions other than the original recording.

Musical abundance feeds Youtube’s second advantage, its unique role as a social media platform. Users comment (for better or for worse), upload their own covers or responses, and subscribe to curated channels, both official and unofficial.

So, as the internet’s first port of call for video, YouTube’s neutral venue houses the largest music streaming platform. According to surveys by MIDIA, in the first quarter of this year, 30 per cent of consumers across several markets — including the US, Germany, UK, Canada and Japan — were weekly viewers of YouTube music. The research group estimates three-quarters of YouTube’s monthly active users are music listeners, or 1.4bn people. According to the IFPI, last year the site represented 46 per cent of all music streaming globally, double paid streaming:

The value of that audience to YouTube is substantial. Parent company Google (and its parent company Alphabet) don’t give financial details, but educated guesses by MIDIA and Citigroup both put advertising revenues associated with music at about $3bn last year.

Which brings us back to YouTube’s big cost advantage. To be fair, price per stream is not an apples-to-apples comparison. YouTube is predominantly an advertising-driven business, which commands lower revenues. It also has a large exposure to emerging markets, where as MIDIA notes, less developed digital advertising markets naturally means lower advertising rates.

Still, according to a spokesperson at YouTube, in total, the music industry has earned over $6bn in advertising revenue from the platform. Not an insignificant amount of money. Yet, as streaming (including YouTube) generated $6.6bn in revenues for the music industry last year alone, perhaps not as much as you’d imagine either.

With the launch YouTube Music Premium earlier this year, which offers a similar service to Apple Music and Spotify, revenues should begin to accelerate soon. Provided, of course, YouTube users are willing to break old habits.

The real test for its dominance, however, comes in January, when the EU Copyright Directive is expected to pass. The directive means YouTube will have to not only catch copyrighted content at source, but also negotiate the licences with rights holders as well.

In the second half of this article, we’ll explore the various sane arguments for and against these measures, as well as whether it will make a marked difference for YouTube, and the music industry, in the future.

Related Links:
Spotify: Drake-oil salesmen — FT Alphaville


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