How YouTube's Subscription Terms Will Hurt Indies – No Content Removal Required

By Ed Christman, 

YouTube might not, in fact, take down music from indies it doesn’t have an agreement with... but it won’t pay them either.

Right after Amazon appeared to take independent labels for granted with a take-it-or-leave-it payment scheme for its new streaming service, YouTube's lower-than-market rate offer for its planned subscription service is causing major agita for the indie sector.

That's because the rates it is offering are also backed by the threat that if their compensation scheme is refused for its paid subscription service, they will be taking those labels off the gravy train of its ad-supported streaming service, which pays out hundreds of millions of dollars annually to labels and publishers.

Not only will YouTube hurt indie labels in their collective pocketbook for refusing to sign its deal for the service, it will be kickking sand in their faces too, because it will likely leave their music up on its site for anybody who wants to play them -- it just won't monetize those music videos by putting advertising against them.

That means labels will have to play whack-a-mole if they want their music pulled off the service, because YouTube will likely hide behind the safe harbor provision in the Digital Millennium Copyright Act and only take down music when notified by the rights owner. Rights owners already know they can't play whack-a-mole fast enough to get their music taking down from the user-uploaded site. Their music will always be up there.

Google's informal company mantra is supposed to be "don't be evil," but that apparently goes out the window when they deal with indie labels, one indie label executive complained to Billboard.

The indie sector is up in arms to the degree that they are trying to get governmental regulatory agencies to look at YouTube's business tactics in setting up the subscription service. In the U.S., A2IM sent a letter to the Federal Trade Commission, asking them to investigate YouTube's practices in dealing with the indie sector. Its counterparts in Europe have said they will reach out to the European Commission.

Not all indie labels are upset with YouTube. "I can't tell Spotify that I only want to be in their premium service, and not in the ad-supported part of their model," says one indie distribution executive. "It’s just that YouTube are going backwards in building their business model."

Meaning: YouTube built the free part first, allowing unauthorized usage of music to flourish until they found a way to monetize it by converting to an ad-supported model. Now, three or four years later, they are adding the premium service, that executive notes. So it makes sense that they would want everybody to be a part of the premium service too; and it makes sense that they would not let them be a part of the ad-supported service, if labels refuse to be a part of the premium service, the executive added.

That executive further notes that other services have started out by offering indies a lower rate than the majors. He cited Amazon and Spotify as two examples where indies were intially offered a lower rate. "We expect to have the same rate as the majors, but the reality of the market is we don't always get that," says that executive, who expects to sign the YouTube deal. "But just as with those services, as we have proven the worth of our content, the rates have gone up. I would expect the same thing to happen at YouTube."
But another executive says YouTube really “blundered.”

“Their negotiations with indies is heavy-handed at a minimum and might be illegal at worst,” they said the executive. “YouTube and Google always do what they want, because that's how they operate."

He says YouTube already has built a system that leaves ways for it to avoid paying rights owners for every transaction. For example, if they can find five publishers, but there are six publishers on a track and they can't locate the final one, they just don't pay anybody.

"There are songs with millions of views, where it is easy to find out who owns it, but they have managed to not pay it out because they haven't found the right owners," he alleges.

He also says that YouTube divides the world into about 190 different territories, but is only selling advertising in about 70 markets. "In all the other markets, your video plays and you don't get a cent because they are not selling advertising there," he complains.

If YouTube wanted to, it could build a tool so music videos are only available in markets where they sell advertising, but they haven't done so, he argues.

Likewise, Youtube has a fingerprinting system for songs that allows it to identify 50-60% of songs that are uploaded, but it doesn't use that tool to pull down songs where it doesn't have the license. Instead, it makes rights owners engage in whack-a-mole by sending take-down notices to the site.

He says YouTube's track record doesn't inspire trust in the current negotiations. "Other services come in and say 'this is exactly what we will do and this is what we will pay.' Did YouTube do that? Of course they didn't."

"YouTube's deals are always complicated, and only in retrospect do you see what they are driving at," that indie distribution executive says. "They try to build scenarios and obfuscate the deal so you don't know what rights they have."