All of the major labels have been out of contract and on a month-to-month basis in their licensing agreements with YouTube for some time now, but the first domino has fallen as Warner Music Group reported that it’s just completed a new deal with the video service. Even though no terms were announced, it’s easy to read between the lines of the announcement to see that Warner Music didn’t get very much of what it wanted in the end, thanks to phrases like “tough negotiations” and “very difficult circumstances.”
In an internal memo from WMG boss Steve Cooper and published by Music Business Worldwide, he states, “There’s no getting around the fact that, even if YouTube doesn’t have licenses, our music will still be available but not monetized at all. Under those circumstances, there can be no free-market ‘willing buyer, willing seller’ negotiation.”
Indeed the music industry isn’t very happy with YouTube’s royalty payouts, but it’s between a rock and a hard place when it comes to changing it. As Cooper stated in his memo, should a label refuse to license its catalog to the service, its music will still appear on it thanks to the fact that the user generated content featuring that music will still be posted. The problem here is that instead of a below-industry-average payout, there would be no payout at all since the label wouldn’t be able to monetize those user videos as it does now. YouTube is completely shielded from any threat of copyright violation thanks to the DMCA law that labels user content a “safe harbor” for which YouTube is not responsible.
About the best Warner Music could do was go for a deal with a short duration. According to Cooper’s memo, “Our new deals are also shorter than usual, giving us more options in the future.” This is more of a, “Let’s do this now and hope that circumstances change down the road,” strategy that’s unusual in that it’s usually the major labels who are dictating the terms. When you’re negotiating with a major tech company who could eat you for lunch and doesn’t have to budge on deal points, there’s little option but to settle for whatever crumbs you can get.
Still, other music execs are angry that WMG caved without getting a larger royalty, but even if all three majors teamed up, it would still be no contest. Unless the DMCA law is changed or replaced, they have no leverage.
The only thing in the music industry’s favor is the fact that YouTube isn’t quite the music powerhouse that it once was. As more music consumers discover the value of easily accessing millions of songs anytime anywhere via streaming either for free or a relatively small monthly fee, they’re leaving clunky YouTube behind. The service has tried to counter with its own YouTube Red, but that has gained little traction since it’s launch last year, as evidenced by the scant press and relative obscurity of its user numbers. The fact that YouTube is losing advertisers over offensive content as well means that the revenue stream will be shrinking anyway.
With Facebook and music streaming still on the rise, it’s easy to see a time when YouTube might be just a blip on the music industry’s financial radar. Until that time, there will be much gnashing of teeth inside label boardrooms as execs try to come to grips with how to deal with a tech giant holding all the cards.