1. YouTube Study Raises More Questions About Value to the Music Industry

YouTube Study Raises More Questions About Value to the Music Industry

YouTube Study Raises More Questions About Value to the Music Industry

YouTube's cold war with the labels is heating up again. As European Union legislators consider copyright legislation that could potentially constrain the streaming service, Warner Music Group this month struck a licensing deal that CEO Steve Cooper said in a memo was negotiated "under very difficult circumstances," a characterization disputed by YouTube head of global music Lyor Cohen.

Then, on May 11, YouTube released the first part of an RBB Economics study that it says will show how it helps the recorded-music business -- adding revenue without cannibalizing more lucrative parts of the industry, promoting other services and giving consumers access to content unavailable elsewhere. It also says that blocking tracks on YouTube has no effect on their popularity on paid streaming services, based on evidence from Germany.

Record labels -- which argue that the "safe harbors" in copyright law give YouTube leverage to license music on better terms than competitors -- don't agree. The study reports, "If YouTube didn't exist, 85 percent of time spent on YouTube would move to lower-value channels and would result in a significant increase in piracy." But label executives say that same point actually shows how much YouTube hurts the recorded-music business, by offering consumers who might otherwise subscribe to on-demand streaming services a free alternative.

Although YouTube reaches more consumers than any other service -- 763.2 million of its users engage with music during the course of a year, according to media consultancy MIDiA -- its advertising generates very little revenue per stream compared with the paid services that are now driving a music business recovery. YouTube chief business officer Robert Kyncl called its ad-supported model a "powerful driver of revenue." (YouTube's subscription service, YouTube Red, is still nascent.) Yet on-demand services pulled an average of $31 per subscriber last year for the industry, according to the IFPI, while YouTube users who listen to music generate an average of about $1 a year. That means labels would be better off if even 3.5 percent of YouTube music users subscribed to an on-demand service.

"It's not apples to apples," says MIDiA co-founder Mark Mulligan, who has worked with both labels and technology companies. "But you can convert a relatively small number of users and still end up with more money."

This question of how many consumers use YouTube instead of a subscription service lies at the heart of YouTube's effect on the industry. YouTube has argued that the vast majority of them are casual fans who wouldn't spend money on music anyway and that monetizing them is a growth opportunity for labels. But would heavier users seek paid services if YouTube disappeared?

The study doesn't really answer that as well as either side might like: The 15 percent of YouTube listening hours that it says would shift to higher-value products doesn't correlate to a specific number of users, and direct comparisons are difficult. RBB partner Patrick Smith says calculating conversions to paid streaming "would be using the [survey] data incorrectly."

Either way, the question of what would happen without YouTube is speculative, since the service isn't going away. "That's not what anyone is seeking," said the RIAA in a statement. "Creators want to make their music available to their fans on YouTube, but at rates that reflect the music's fair-market value." (YouTube declined to comment; label reps deferred to the RIAA.) The survey that the study is based on didn't ask whether respondents were already subscribed to services like Spotify. And confusingly, under the study's terms, listening to music one already owns -- which generates no additional revenue -- counts as a higher-value form of consumption.

To some extent, the two sides are simply talking past each other. "The labels' position is that music has an inherent value, and YouTube's point is that they have to pay according to what they make from advertising," says Mulligan. "You have two opposed worldviews, and this war of words is part of that."

This article originally appeared in the May 27 issue of Billboard.

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