Features I by I 25.06.14

Breaking down YouTube’s new premium service: what it means to indie labels and you

Breaking down YouTube's new premium service, and what it means to indie labels and you

As debate surrounding the terms of YouTube’s new premium music service for independent labels rages on, a typical contract has been leaked to the public. FACT’s Laurent Fintoni rounds up the facts – and opinions from those involved – to help you make sense of the situation.

Earlier this month, details emerged of a battle between YouTube and independent labels over the web giant’s new premium music subscription service, and what indies deemed to be unfavourable terms and advantages granted to majors.

On Monday this week, Digital Music News leaked a typical contract offered by YouTube to independent labels. Those of you with a penchant for legalese can read it in its entirety here.

The leak provides some much-needed clarity to some contentious points, though it still leaves others unresolved – especially the arguments relating to what majors are getting out of this, as no one has publicly seen their end of the deal (yet).

As pointed out in our original story, this “battle” is between YouTube and roughly 10% of the industry who are holding out for a better deal. This 10% includes notable independent labels such as Domino Records and XL, whose artists include Adele, Arctic Monkeys, The xx and others. Below, we summarise some of the key questions about YouTube’s new service, with analysis and opinion from various sources.

Is YouTube removing videos from non-complying labels?

As far as we can tell this hasn’t happened yet. It was by far the catchiest aspect of the story when it broke, but if you fire up a YouTube search for the likes of Adele, you’ll find their music – whether uploaded by the label or YouTube users.

Most analysis on the subject seems to think that this side of the story was probably exaggerated. It may yet happen, but considering the size of YouTube’s video stock it would likely take more than “a matter of days” as originally stated.

What did the majors get that the indies didn’t?

The debate between YouTube and the indies involves Merlin, a body that represents many of the larger independents (and some distributors) in digital negotiations. Merlin was set up precisely so that independents could compete with majors in terms of bargaining muscle when it came to big digital deals like this one.

Merlin’s issue with YouTube’s new service and its contracts is over whether majors received advances or equity arrangements as part of their deal with the Google-owned website. Last week CMU explained Merlin and the indies’ position: this part of the dispute is really a continuation of the age-old David and Goliath dynamic, and relates not to YouTube’s particular deal but the eternal issue of independents’ access to capital and cash flow.

Companies such as Believe Digital, an independent distributor who has signed its clients up to YouTube’s new services, argue that such issues must be dealt with at a wider market level rather than just YouTube. Others, such as Kudos Distribution who represent a large portion of the smaller indies in the UK and Europe, have taken a stand with Merlin in refusing to sign up to the new service.

Is YouTube offering lower rates than Spotify, etc?

Services like Spotify and Rdio pay 70% of their combined revenue to independents, while YouTube’s current deal amounts to 65% of the service’s revenue: 55% to labels and 10% to publishers and performance rights organisations.

However, as pointed out in an analysis of the leaked document over on TechDirt, the rate offered by YouTube is still higher than what it previously paid (see the relevant table from the contract showing the year-on-year percentage rate increase from YouTube’s end).

What is the “negative most-favoured-nation” clause?

Another point contested by the resisting group of independents is the so called “negative most-favoured-nation” clause: should any major label or major music publisher agree to rates for the YouTube service that are lower than those set forth in the contract, Google would be entitled to reduce the indies’ analogous rate accordingly. The indies worry that they could end up stuck with reduced payments as a result.

TechDirt argues that “it seems like a perfectly reasonable contract term for a variety of reasons. And, at the same time, does anyone really expect that the major labels are going to agree to cut rates? That seems doubtful. They’re going to seek to increase them, rather than the other way around.”

Over at Billboard, which published a solid analysis of an early version of the contracts late last week, there is an equally telling quote from a service provider:

“When iTunes introduced its matching-cloud service, the labels were not given any choices. They were told ‘this is the service, you will be in it and here is what we will pay,'” that executive recalls. “There wasn’t any outcry from indies then. Google sees itself on the same level as iTunes and acts accordingly.”

How will it affect YouTube’s ad-supported service?

The last major point in the debate surrounds YouTube’s existing ad-supported service, and how this will change once the premium service is rolled out.

As opposed to Spotify, YouTube currently only pays for plays on ad-supported videos (videos that have advertising content attached to them). Under this process, it’s possible for a video that has all the right owners attached to it to still not be monetised, if the so-called advertising inventory runs out.

Essentially, YouTube is saying that they may monetise some of the music in the ad-supported service, but not all of it. A YouTube source spoke to Billboard and claimed that “if every video had ads against it, it would drive away users and reduce plays. By mixing up videos with commercials and ones without them, YouTube is trying to keep its user base high and drive up overall advertising revenue.”


This is further complicated by the ContentID system YouTube uses to match registered audio material to user-uploaded content. As pointed out by The Register, removing such “illegal” content from YouTube could be a massive pain for small indie labels, essentially leaving YouTube free to have registered content on their site available but not monetised.

However, the contract also includes a clause regarding catalogue commitment and monetisation. Under this clause, it would appear that YouTube requires labels to make their entire catalogue available to YouTube for their service, thus rendering current deals where an artist/label might opt to give a service exclusive for a limited time irrelevant.

TechDirt points out that there are exceptions for “limited exclusives” in the contract and it’s not entirely clear whether a label or artist would have to hand over everything they’ve ever made/released to YouTube (though certainly anything that goes into their monetisation system). And this is where it gets interesting, as TechDirt explains:

That said, we’ve also heard that this covers ContentID. So… an artist that doesn’t want to post a video of their own song, but does want to reserve the right to monetize others’ use of his or her songs, is put in an uncomfortable position. Because by using ContentID, they’ve basically agreed to license their music to the program. That’s a point that I can see might reasonably make many artists uncomfortable.

What’s next?

The complexities of the case are certainly not of interest to most music fans, but the ultimate impact of YouTube (and therefore Google) entering the music-as-service market will affect everyone — we just don’t know how yet.

Technology’s disruptive power is what has got us here in the first place, and as pointed out in an op-ed over at The Guardian, it’s important that the companies that rise up from such disruption are held to account sooner rather than later.

In the more immediate future, if this dispute does lead to YouTube removing the non-complying labels and artists from its service, what becomes the first port of call when we want to instantly share a song with someone? And more pertinently, what happens to FACT’s playlists?



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