Wednesday, May 4, 2016

When It Comes to YouTube, Google Is Only Half The Problem…The Other Half Is Major Labels And Publishers

It is common knowledge that the creative community has been discontent with YouTube for some time.  In recent weeks, a variety of articles have surfaced featuring various members of the music industry as they decry the paltry payouts issued by the streaming giant.1-5  This outrage is not without merit, for despite YouTube being the largest music streaming platform (in terms of both content and users), it is also the lowest paying.6-9  These substandard payouts stem from the price of YouTube ad space, along with the revenue splits employed by YouTube in distributing ad revenue.  Indeed, the latter is the bigger issue, as YouTube pays content providers a mere 55% of net earnings.10-12

It is unclear exactly how much YouTube takes off the top before splitting the remaining ad revenue, but it has been reported that this figure is 10%.13  Of course, without the ability to audit the company, it’s impossible to verify this with certainty, but if true, it means that YouTube is paying artists (and all content owners) 49.5% of the gross ad revenue.14  Importantly, when it comes to monetizing user-generated content, this percentage gets further reduced for the many artists who are dependent upon intermediary Content ID service provides that take commission on the content owner’s side of the earnings - for this group, payouts drop even further, typically between 37-42% of the total pie.15

Now, depending on the artist, there may or may not be labels, publishers, managers, etc with their hands in the pot on the artist side of earnings; but the literal amount that ends up in an artist's pocket is irrelevant from the standpoint of how big (or small) the artist pot is to begin with.  It’s one thing to assess a platform in terms of the revenue it generates, and another thing to assess the fairness of how that revenue gets divided.  Consider that iTunes, which has become the unofficial benchmark of revenue splits, pays 70% of gross earnings to the artist.16  Spotify does the same.17  Apple Music pays 71.5-73% of gross.18  And other services, such as Bandcamp, pay as much as 90% of gross to the artist.19  That is a substantial difference in comparison to YouTube, with important financial consequences.  

Google asserts that such comparisons are misguided,20 as download services and paid subscription streaming services are structurally different than a free ad-supported framework - instead, they argue YouTube is more akin to traditional radio.  Well, last time I checked you couldn’t turn on the radio and choose the songs you want to hear.  In contrast, YouTube is an interactive on-demand service…it may be different from other on-demand streaming platforms, but not in a way that justifies paying 55% of net revenues to creators.

So, how has YouTube managed to successfully implement an obviously unfair and exploitative system?  There are a few variables involved, three of which I will briefly summarize.

First, YouTube is able to facilitate the uploading of unauthorized user-generated content, while being legally protected under the “safe harbor” provision of copyright law.  In short, anyone can upload anything they want, and YouTube is not liable for their actions.

Second, the DMCA process, whereby a copyright owner can notify YouTube of an unauthorized video containing their work, with instructions for it to be taken down, is severely flawed in a variety of ways, ultimately making it useless as a method of keeping content off of the platform.21

Third, access to YouTube’s audio recognition Content ID System, which thoroughly addresses the above by identifying user-generated content on an automated and ongoing basis, is granted by YouTube only at their discretion.13,21  Accordingly, they have elected to grant access to just a subset of content owners, access which is conditioned upon consenting to the terms of Google’s label and/or publishing agreement.4,21,22  Essentially, Google leverages the value of Content ID to strong-arm parties into accepting what are widely held to be substandard deal terms.  For those denied access to Content ID (a substantial portion of applicants), and for those that refuse to consent to Google’s label / publishing deal, the only recourse is to engage one of a variety of independent services that will broker Content ID access in exchange for their ability to monetize your work.12,21

The upshot of these 3 variables is that it is impossible for copyright owners without direct access to Content ID to remove their content from YouTube.  And for those with direct access, they have begrudgingly accepted YouTube’s monetization terms in order to gain that access.  Consequently, the music industry has been stripped of negotiating power with respect to securing more equitable compensation from the platform.  It is a strategy part divide and conquer, and part blackmail - you can accept YouTube’s payout rates and make some money from user-generated content with Content ID access…or you can reject them and earn nothing, with no access to Content ID (in which case your content will often end up being monetized by others without your consent or participation).21

But there is a 4th variable, one which is just as important as the others, but which rarely (if ever) gets discussed.  While only a subset of content owners have direct access to Content ID, that subset is inclusive of the largest media companies - companies that include major record labels and publishers.  Even though YouTube succeeded in leveraging Content ID and the inefficiencies of DMCA to compel these companies into entering unfavorable licensing deals, those deals do not obligate said parties to monetize the content in question.  In fact, the “majors” are free to utilize Content ID in whatever manner they wish - monetize, track without monetization, or block all user-generated content.  Thus the majors, whose catalogs presumably account for the majority of music streaming on YouTube, possess the ability to effectively pull their catalogs from YouTube with the click of a mouse.  And make no mistake, a system wide Content ID block by the majors would create sizable ripples, changing the landscape of music streaming for all parties, major and non-major alike.  So why haven’t they?  Because they are pussies.  No seriously, they really are pussies.

Many of the music industry representatives complaining about YouTube’s low payouts in the press are the same people that are in a position to cut their ties - but instead of actually doing that, they choose to continue taking it up the ass from Google.  Now, don’t get me wrong, if someone wants to take it up the ass, that’s their prerogative.  But you can’t choose to take it up the ass and then start complaining about how your ass is all sore.

If you’re like me, you are perplexed by this behavior.  Surely the labels / publishers are comprised of intelligent individuals that see the absurdity of the current situation.  Even Google has publicly pointed out the obvious, stating in response to claims that YouTube unfairly devalues music: “Thanks to Content ID, record labels…can remove any or all user-uploads of their works from the platform on an automated and ongoing basis”.1  While this conveniently leaves out the fact that not all content owners have direct access to Content ID, their statement is 100% accurate as it pertains to major labels and publishers.  Moreover, the failure of labels / publishers to utilize Content ID to remove all of their material, or to at least cease all YouTube monetization of both direct uploads and user-generated content, renders them complicit in the exploitation that transpires, and it serves to reinforce and reward such behavior by Google.

So, why is the music industry continuing to monetize their content on YouTube when they object to what they’re being paid?  I can only speculate.  Maybe they are afraid of making Google angry.  Or maybe the people calling the shots at these labels / publishers have hidden loyalties to Google, while everyone else is unaware or powerless to stop the coup.  More than likely though, I suspect the real reason is that although they are unhappy with the revenue splits in principle, the amount of money being made is still substantial, despite being a fraction of what it should be…I think they simply can’t bring themselves to leave the money on the table and walk away.  But of course, that is precisely what’s required to get Google to the negotiating table.  You have to be prepared to endure financial sacrifice.  You have to have a spine.  You have to be willing to not be the bitch of a corporate behemoth.

Easier said than done, it would seem.  To be clear, I acknowledge that it can be difficult to walk away from sizable sums of money.  How much would you be willing to walk away from, for the sake of principle?  $10,000?  $100,000?  $1,000,000?  Many probably wouldn’t be willing to walk from any of these sums.  I get it.  After all, I am currently receiving YouTube monetization income, via indirect Content ID access.12  As much as I detest the conditions and circumstances that led to me receiving this supplemental income stream, I don’t detest having more money in and of itself.  Who can’t use extra money?

But at the end of the day, if you don’t want to be exploited and taken advantage of, you need to stop allowing yourself to be exploited and taken advantage of.  It’s pretty straightforward.  And the reality is that we’re not talking about a poverty stricken class facing a financial dilemma…we’re talking about major label artists and bands.  If Taylor Swift is making 5 million dollars in YouTube ad revenue, she’s making hundreds of millions elsewhere.  This is to say, it’s all relative and any potential ad income from YouTube is indicative of much greater revenue outside of YouTube.  They can afford to leave the money on the table.  And remember, for every dollar paid out to the music industry (reportedly $2-3 billion to date),1,23 YouTube retains an equal or greater sum; if there’s one thing that corporations deplore, it’s losing billions of dollars of revenue.

Now, I will grant you that it is convenient for me, one who does not have direct access to Content ID and therefore can’t lead by example, to argue that other people should cease YouTube monetization for the greater good.  But note that not one of the 34 million views to date on my personal YouTube channel is or has been monetized by me.  I assure you, if tomorrow I were granted direct access to Content ID, I would not hesitate to cease monetization of the now 209,000 user-generated videos that have been identified and their resulting 33 million average monthly Content ID views.  Why?  Not because I don’t want or can’t use the money, but because fuck you if you think I’m accepting 55% of net proceeds.

It’s worth considering too that in all likelihood, a system wide Content ID block by the majors would lead to increased traffic on other paid streaming platforms, all of which pay more than YouTube.  Of course, Google claims2,4 that YouTube is monetizing a substantial portion of music consumers who otherwise would not be willing to pay for music…but even if this is true, it just means that many of these consumers will find a different free streaming service, such as Spotify, whose free ad-supported tier payouts, while also controversial, are still higher than YouTube.  And sure, perhaps some of these consumers will end up resorting to piracy, or utilizing a non-paying streaming service, or simply consuming less music - so what?  What’s the alternative, to continue getting exploited indefinitely while lining the pockets of Google?  But let’s not forget the other possibility, that a system wide Content ID block ends up leading to a renegotiated and more equitable distribution of YouTube ad revenue…imagine that.

Of course, even if YouTube were to increase revenue splits comparable to its competitors, giving a minimum of 70% of gross earnings to artists, it may still remain the lowest paying music company with respect to the actual payments it disperses.  But that, in and of itself, is not the real issue at hand - after all, any comparison of this kind will always yield a hierarchy - someone has to be on the bottom.  Drawing conclusions based on total or individual payouts is highly misleading.  It’s about how revenue gets distributed, and the freedom (or lack thereof) on the part of creators to participate.  Thus, artists and music reps pointing to per stream rates, or earnings per X number of views, is a misguided approach.  Similarly, Google praising itself for having paid $3 billion to the music industry to date completely misses the point.  The exploitative nature of the exchange that led to that $3 billion is the issue at hand.  And while the overall amount that YouTube pays may be growing with every year,20 unless you fix the underlying inequity inherent in the formulation of those payments, you will only be compounding that exploitation.  So a more equitable revenue split will not only narrow the gap between YouTube and competing services, but it will also shift focus to the proper value of YouTube as a promotional and advertising space.

To that end, one could argue that user videos that contain music in the background (e.g. cat videos, sports videos, etc) constitute a partially new and unique revenue source.  At the same time, one could argue that music-specific YouTube videos cannibalize income from higher paying competing services.  Then there are the myriad variables that go into how ad payments are calculated per view, one of which is geography (e.g. a view in the United States is worth more than a view in Spain).  All of this complicates straightforward comparisons between YouTube and other platforms, but the bottom line is that if creators choose to participate in the service, they should reap a fair percentage of revenue from that participation.  I’m not, and I don’t think anyone is, anti-YouTube in principle…I’m simply against being forced to participate while being monetarily exploited.

I do concede that it’s within the realm of possibility that Google could react to a music industry revolt by revoking all direct Content ID access.  But such an action by Google would escalate the conflict, serving to greatly strengthen the legal argument and current lobbying efforts to rework the existing DMCA and safe harbor provisions.  The fact is that Content ID is the best defense that Google has in maintaining the status quo - to take that away from the majors would be to potentially shoot themselves in the foot, and it goes without saying that a successful DMCA “take down and stay down” revision would take considerable wind out of YouTube’s sails.

I will also concede that perhaps major labels and publishers began their partnership with YouTube in good faith that initial unfavorable terms would improve over time.  But even if that was the case, the ship has long since sailed.  What you have now is not going to change, for there is no incentive on Google’s part to do so…at the end of the day, despite stamping their feet in protest, the music industry is complying with what Google wants it to do.

And just to be clear, DMCA and safe harbor are most certainly in need of a serious overhaul - they can, and should, immediately be revised to properly apply within the current context of digital consumption.  This is particularly all the more pressing if YouTube is going to continue withholding direct Content ID access to so many content owners, therein stripping away their ability to abstain from the platform.  But this has no bearing on the fact that the largest sectors of the music industry already have the capacity to effectively and efficiently withdraw their catalogs via direct Content ID access - and there is no greater negotiating power than that.

So majors, you have a choice to make.  You can continue to do what daddy Google tells you to do, or you can grow a pair and have some dignity.  If you choose the former, so be it, but please shut the fuck up about your discontent moving forward…you have become the battered wife that refuses to leave her abusive husband, and it’s depressing to witness.  So right after you finish chastising Google for being evil, do us all a favor and stop being a bunch of pussies.

1 "Here's why the music labels are furious at YouTube. Again." Re/Code. April 11, 2016.
2 "Europe's divi-boss tells YouTube to cough up proper music royalties". The Register. April 19, 2016.
3 "Debbie Harry: "Music matters. YouTube should pay musicians fairly". The Guardian. April 26, 2016.
4 "Nikki Sixx launches campaign to get YouTube to 'do the right thing' over music royalties". The Guardian. April 24, 2016.
5 "Nelly Furtado: "YouTube pays more than nothing. That doesn't make it fair". The Guardian. May 2, 2016.
6 "What Major Music Streaming Services Pay Artists, Visualized". Co.Design. July 15, 2015.
7 "YouTube Music Is Growing 60% Faster Than All Other Streaming Music Services Combined". Digital Music News. September 14, 2015.
8 "How Much Do the Most Popular Streaming Services Pay Per Stream". Sonicbids Blog. July 20, 2015.
9 "YouTube - Not Spotify, Pandora Or Apple Music - Is The Number One Music Streaming Service Worldwide: Here's Why". Tech Times. July 8, 2015.
10 "YouTube to Tv Networks: No More 'Sweetheart' Ad Deals for You!" Ad Age. October 31, 2013.
11 "How YouTube Pays Artists by East Bay Ray". Janky Smooth. December 3, 2015.
12 "Shining Some Light On The Dark Side Of YouTube". Zack Hemsey Official Blog. January 28, 2016.
13 "YouTube Revenue Explainer". Music Tech Solutions. March 10, 2016.
14 10% off the top means content owners would be getting 55% of the remaining 90% of revenue, which equates as follows: .55 X .9 = .495 (49.5%).
15 Assuming a commission of between 15-25% on the artist portion of earnings (49.5% in this scenario), this would leave the artist with 75-85% of their original share: .85 X .495 = .42075 (42%) / .75 X .495 = .37125 (37%).
16 "Sell Your Music on iTunes". Tunecore Official Website.
17 "How we pay royalties: an overview". Spotify Official Website.
18 "Here's how much Apple Music is going to pay artists". Business Insider. June 22, 2015.
19 "Pricing". Bandcamp Official Website.
20 "No other platform gives as much money back to creators". The Guardian. April 28, 2016.
21 "The Dark Side Of YouTube". Zack Hemsey Official Blog. January 28, 2015.
22 "What should I do about YouTube?" Official Zoe Keating Blog. January 22, 2015.