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Business News Digital Labels & Publishers Legal
YouTube exec bigs up the incoming ‘value shift’ as a thousand artists hit out at ‘value gap’
By Chris Cooke | Published on Friday 1 July 2016
YouTube’s Chief Product Officer Neal Mohan has written an op-ed for Billboard in which he urges the music industry to stick with free streaming, wooing artists and labels with the promise that the big boom in online advertising income is yet to happen. He’s also twisted the industry’s anti-YouTube buzz term ‘value gap’ to do so.
Writes Mohan: “While the recent concerns artists have made about the copyright safe harbour reflect a fear of losing money from ad-supported streaming, the truth is, it is a new source of revenue that is poised to dramatically increase. As digital consumption grows and more print, radio and TV advertising dollars shift online, the music industry has a chance to reap a massive windfall”.
Although in the early days of streaming the music industry did often talk up the potential of advertising as a big future revenue stream, of late most labels have lost their enthusiasm for ad-funded services, mainly because the premium subscription platforms are now bringing in way more money than any of the freebie set-ups, whether its YouTube, Pandora or Spotify freemium.
They tolerate the latter because of the theory that Spotify freemium signs up premium users. Meanwhile, Pandora can operate under a compulsory licence in the US, and – the labels argue – the safe harbours that allow YouTube to operate an opt-out rather than opt-in streaming service increase the Google company’s negotiating hand, meaning labels have to sign up for a service they don’t actually approve of.
Much is made about how the free streaming services have by far the most users but bring in a modest amount of money. Of course, to an extent, that’s not an entirely new phenomenon, in that in the past the majority of people got the majority of their music via radio – free to access, and paying nominal royalties to the music industry – while a minority of consumers contributed the majority of the money by buying CDs.
The problem today, though, is that unlike with radio and CDs, the free and paid for options are very similar. But the upside, reckons Mohan, is that the potential ad income from free streaming services is significantly more than radio ever generated for the music community, partly because digital services commit to pay a much bigger share of ad income over to the labels and publishers.
“For all the people who purchase subscriptions, there is an even larger audience all over the world that won’t pay, or simply can’t afford the price of a subscription”, he writes. “The majority of music listeners – around 80% – are casual fans who, rather than buying CDs or digital downloads, are happy just listening to the radio. And despite earning $35 billion a year in ad revenue, radio pays no royalties to labels and artists in countries like the US, and only a very small share of revenue in Europe”.
Labels and publishers have previously reacted negatively to YouTube trying to position itself as the modern equivalent of radio, and of course the US is almost unique in not forcing radio stations to pay any royalties to the labels (publishers are paid). Though it is true that streaming platforms commit way more of their revenue to the music industry than traditional broadcasters ever did.
“The industry now has a fantastic opportunity to earn revenue from these casual fans thanks to digital advertising”, Mohan goes on. “Unlike radio, ad-supported digital services like the free tiers of Pandora, Spotify, SoundCloud and YouTube pay out the majority of their ad revenue to labels, publishers and artists, which means they only earn revenue when their partners do”.
So there’s lots more cash incoming, says the YouTube man. “As casual fans consume more of their music online and less on radio, the industry will begin to earn revenue from 100% of the people who enjoy music, not just the 20% who buy CD’s, vinyl or streaming subscriptions. This could result in a multi-billion dollar ‘value shift’ from radio to artists and songwriters. While a healthy subscription business may eventually sign-up 200-300 million people worldwide, the ad-supported market has the potential to earn money from three billion people who are currently online”.
Did you see it? ‘Value shift’. Give that man a buzzword gong. It’s a gallant attempt to talk round the increasingly tetchy music community, in a bid to counter the war of words on both sides of the Atlantic which has seen labels, publishers, collecting societies, managers and, crucially, artists all hitting out at YouTube, its business model and the royalties it pays, and the safe harbours in copyright law that allow it all. Though I don’t see it having a big impact. Not until this promised new flood of advertising cash starts to flow in.
Meanwhile, talking about the tetchy music community and its war of words against YouTube and safe harbours, a small phone directory of artists have put their name to a letter sent to European Commission president Jean-Claude Juncker calling on him to fix the good old ‘value gap’ in Europe.
“This is a pivotal moment for music”, says the letter. “Consumption is exploding. Fans are listening to more music than ever before. Consumers have unprecedented opportunities to access the music they love, whenever and wherever they want to do so. But the future is jeopardised by a substantial ‘value gap’ caused by user-upload services such as Google’s YouTube that are unfairly siphoning value away from the music community and its artists and songwriters”.
“This situation is not just harming today’s recording artists and songwriters” the letter goes on. “It threatens the survival of the next generation of creators too, and the viability and the diversity of their work”.
Ed Sheeran, James Bay, Lianne La Havas, Little Mix, Mark Ronson, Paloma Faith, Tom Odell and The 1975 are among the Brits whose names are included at the bottom the letter, though I’m not sure how much sway UK artists will actually have with the top man at the European Commission just now. But don’t worry, there are plenty of music makers from elsewhere in Europe in amongst the 1000+ signatories, none of whom would dream of dumping the EU just for laughs. Not at all. So fix things, Juncker.
