Alright– I promise. This is the last YouTube diatribe at least until the end of the summer. But since the most recent call to arms on this blog, I actually wound up doing a NPR radio interview for a story about the growing influence of YouTube in the music biz. The prospect of being on the firing line prompted me to do a bit more homework about the licensing battles involving YouTube at the moment– and the more I read, the more angry I’ve become. So now, I’m really fired up.

Yes, I know that YouTube provides a very valuable service to unknown and developing artists in helping to expose them to a wider audience. I know that YouTube can be a useful A&R service, helping to draw label and publisher attention to particularly reactive songs or artists. But for active or aspiring songwriters and music publishers, I think it’s worthwhile to understand how YouTube has approached rate negotiations with publishers, record labels, and copyright owners. It certainly presents a pretty clear picture of the level of seriousness they are bringing to the negotiating process and to complying with copyright law. It also makes very clear the actual monetary value they attach to music.

In a nutshell, here’s the situation:

With the record labels, YouTube is currently in negotiations to renew licenses made several years ago. While the labels thus far have fared better than anyone else with YouTube, the actual income generated under these early license agreements is negligible. YouTube income has certainly not done much to break the free-fall in which labels now find themselves, nor has it softened the blow to the artists, most of whom are still wondering when that elusive YouTube income is going to show up on their accounting statement.

But on the publishing side, it’s even uglier. For the performing rights organizations, led by ASCAP, the last three years of negotiation have proven extremely disillusioning. Back in 2005, YouTube agreed to make performance payments, based on an understanding between ASCAP and YouTube that both parties would eventually settle on a reasonable rate. Unfortunately, it’s easier to agree to agree than to actually agree. After years of negotiations, YouTube and ASCAP have failed to reach an agreement upon a reasonable rate, and YouTube has paid nothing to the PROs while that fruitless negotiating was going on. If you want to know why those talks fell apart, here’s one clue:

Just last week, a judge from the US District Court ordered YouTube to pay 1.4 million dollars for the unlicensed use of ASCAP’s material from 2005-2008. Then, the judge ordered YouTube to pay $70,000 a month, beginning in January of 2009. To put that in proper perspective, consider that Imagem Music recently purchased the Rodgers and Hammerstein song catalog for somewhere around $20 million dollars. So while the purchase of one song catalog from one writing team (granted a pretty good one) will set you back $20 million, the judge is granting YouTube unlimited access to HALF OF THE ENTIRE SONG CATALOG IN AMERICA FROM THE LAST 100 YEARS for $1.4 million dollars. Even the judge acknowledged the measly nature of the sum, saying:

“Even considering that the fees paid to ASCAP will represent only about one-half of the total fees that YouTube pays to music performing rights, the contemplated interim fees are clearly reasonable, even conservative, in comparison to those called for in other licenses for the performance of copyrighted content on the Internet,” Judge Connor said.

Well, he got that right. $1.4 million dollars is scraping the bottom of the barrel, given the extent of unauthorized use of copywritten material over the past four years. But get this– YouTube thinks even $1.4 million its too much! How much would it like to pay for access to the entire ASCAP catalog, which includes thousands of classic songs from every era in modern music history? Uh, maybe about $80,000?

Huh? Did someone forget a zero or two on that number? No. YouTube has proposed that they will pay $80,000 to cover the last three years, and then about the same amount annually in 2009 and beyond. That’s a pretty sweet deal. It’s also a pretty revealing one, in case you’re wondering what YouTube and Google think copyrighted music should be valued at. Basically, less than the annual salary of one mid-level executive in their office.

Of course, YouTube and Google claim that since YouTube has proven woefully unsuccessful at actually making any money, they shouldn’t be saddled with the hindrance of having to pay fees for use of the material that is at the core of at least fifty percent of their most popular programming. The flaw here is that YouTube was never actually designed to make any money.

Like many internet businesses, the strategy from its conception seems to have been to create a site that was immensely popular rather than income-generating. Of course, this was done with the knowledge that such a popular destination could then be flipped for a massive financial payout to its creators, despite the fact that there were no actual earnings. Not surprisingly, this is exactly what happened when Google purchased YouTube for $1.65 billion. How convenient for the creators that they didn’t have to share any of that $1.65 billion with the people that created the material upon which their “network” is based. They probably would have sent over a check for 80 grand.

When one considers the financial burden of paying ASCAP royalties upon a company like YouTube, it’s worth remembering that YouTube is basically an entertainment network that creates absolutely nothing of its own. Every minute of its programming is made up of things either donated or stolen. YouTube is a TV station that doesn’t even own a camera. Given that they have virtually no overhead, it doesn’t seem unreasonable that payments for rights to the material they use should cost them at least half of what they actually bring in, maybe more.

During the interview with NPR, I was asked about the promotional service that YouTube provides to the music industry. Surely, the exposure that it offers artists at all different levels has to acknowledged. In fact, in this blog, I’ve suggested on several occasions that the smartest career strategy for a new, unknown artist would be to create one great song, do a truly inventive, provocative, funny, attention-grabbing video and post it on YouTube, then see how the audience reacts. As a means of being “discovered”, there aren’t many better, or more accessible forums.

But for established artists, record labels, and publishers, the “promotional” value of YouTube is starting to look rather dubious. Promotion for what? To help artists sell albums? That’s clearly not working. Check the album sales of the music industry as a whole since 2005. Whatever promotional service YouTube is providing, it’s not very effective.

Suppose you owned a butcher store and a man set up a table in front of your shop, handing out free hamburgers. You might complain— but then he would explain that really he was providing a promotional service for your butcher shop, showing people just how tasty a well-cooked piece of beef could be. What seemed to be direct competition for your shop would prove to be a boon to your business. Great.

But what if your butcher business then proceeded to crash and burn, as your customers took the free hamburgers, ate them for dinner and never came into your store again. How long would you wait until you tried to get rid of the less than helpful “promoter” outside your store?

As I’ve said before, the day of reckoning may have arrived. Warner has taken a bold, if marginally effective step, by pulling product off of YouTube. ASCAP continues to fight the good fight. On the other hand, Universal has immediately abandoned the protection of its writers and artists, and hopped into bed with YouTube, trying to put the rest of the industry at a disadvantage. And here’s another less than encouraging story from the front-lines of the battle:

PRS, the licensing organization for publishers and songwriters in the UK, has been in its own rate dispute with YouTube, running into the same negotiating brick wall that ASCAP, NMPA and others have encountered. In a move that took the industry somewhat by surprise, YouTube recently countered PRS’s tough negotiating stance by pulling off all PRS-licensed, premium music videos supplied by the labels in the UK.

It now appears that PRS has come back to the negotiating table with a new offer. Rather than insisting on the previous royalty rate of .22p per track, they have put forward a new compromise. The new per track price?


Yep. From 22 pence to less than a penny. There’s not much you can buy for less than a penny anymore– here or in London. Apparently, a song is one of them. For songwriters and publishers, what you can see on YouTube tonight is your career slipping away…

    Wow, that’s shockingly low! Well chalk it up to Google to execute a savvy business move. It seems to me they are going to hold ASCAP in a state of lock down for years to come… Winner Google! They can use all the content they want to drive traffic numbers and increase ad revenue for a price to be determined down the road, savvy to say the least. AND, they are tremendously under-valuing the content in negotiations so that the 2 can “meet in the middle” (which is perfect when playing to a judge that doesn’t realize the monetary value…AT ALL! And as for effectiveness, this is one of the pitfalls in web analytics, there is no point A that directly causes point B… CD sales have to be driven by the accumulation of sales, and can’t be judged based on youtube views. These great unknowns leave web guys twiddling their thumbs as you can’t change what you don’t have a metric for…other than you know it’s not working. (Don’t get me started on web stuff, it’s my wheelhouse). All I know is ascap and the rest seem to be just spinning their wheels trying to adjust at a turtle’s pace while Google is laughing all the way to it’s theoretical YouTube Bank (if it’s profitable… that is the point right? or it is…lol)

    Halfway through the book Eric, spells things out nicely.

    - Brandon Keeley
    New Tune: Lost in love

    Touche! The YouTube arrogance has irked me considerably over the years, and the ‘but it’s good for the industy’ line people throw out is as you point out lacking a great deal of comprehension of the real state of things. Thanks so much for another solidly informative and well-written post.

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