Growth in YouTube global streams + Unfair value returns = ‘Value Gap’.
A September report titled ‘Measuring Music 2016’ published by UK Music shows several key things. The report states that the UK music industry has outperformed the UK economy in terms of economic growth. Last year, UK music’s economic contribution in GVA (gross value added) grew 17% to £4.1 billion, or $5.03b. Employment and exports also grew 11%. This is compared to numbers from 2012 to 2015.
In the wake of Brexit, however, the report issues a strong warning:
“BRITISH MUSIC’S HUGE EXPORT VALUE AND FOOTPRINT MUST BE SUPPORTED AND PROTECTED IN THE WAKE OF BREXIT.”
British music also continues to dominate global sales charts. Five of the world’s top 10 artists in 2015 were British. Most notably, revenues grew 49% from music streaming, leading UK Music to expect great signs in the future.
YouTube also beat out top music streaming services as a source to listen to music. They cite a recent study done by Audiencenet. The respondents were asked which services they used to listen to audio content during the past 7 days. Here’s what they found:
“More than 30% of the 3,415 sample were weekly users of YouTube making it by far the most popular method of music consumption in the UK.”
However, this isn’t necessarily good news. The report reproached YouTube for its poor artist payout system. The study noted a value gap that exists between content creators like music artists and the service. YouTube is growing strongly in global streams. However, music rights payments are modestly increasing, but not at the rate that they should be. Take a look at the numbers the study found:
“The YouTube model, despite its reach, is yet to deliver fair financial returns for rights owners and creators, artists composers, songwriters and publishers.
In 2015, it paid out $740m in music rights payments, up only a modest 11% from 2014 despite total views growing 132% to 751 billion streams.”
Measuring Music calls for immediate action to address the issue.
“What is clear is that whilst YouTube and other similar ad-funded services remain a vital way for the music industry to reach fans, the value gap between creators, rights-owners and parts of the tech industry that rely on ad-revenues over subscription and licensed income is too wide and needs to be addressed immediately.”
In the Audiencenet study, YouTube stood strong, and nearly unchallenged. In second place was the CD at around 20-25%. Spotify was at just under 20%. Apple Music was behind Facebook at around 7-8%. Other services like MySpace, Vimeo, Deezer, and Amazon’s Audible took the final places.
So, what exactly does this mean for the music industry? What is the fabled “value gap?”
Let’s take a look at a few key facts. YouTube was founded in 2005. The following year, it was acquired by Google. According to Jimmy Iovine, back in 2015, YouTube accounted for 40% of overall music listening and only 4% of revenue. That means that more people listened to albums on YouTube than any other on-demand streaming service. The value gap stems from what the music industry sees as relatively low revenue payout. Here’s the key problem: YouTube is only willing to pay out a certain amount for music licenses and their actual market value. YouTube’s total number of streams rise dramatically, but their revenue payout only rises marginally.
Just take a look at the Business Insider’s stats for a regular YouTuber. In 2014, they published an article detailing what some YouTube “stars” make on the service. Back then, YouTube sensation Olga Kay made and uploaded 20 videos per week, on average. She spent $500-$700 a week on editing costs. However, she was only making $7.60 per 1,000 ad views, despite having over a million subscribers on her page. This number was also down from 2012, when she earned $9.35. But, take a look at the following statistic, which is startling to say the least.
“Ads are only run on a minority of videos shown. Roughly, a video creator will earn $2,000 for every million views…And then YouTube takes 45 percent… (The IRS will take its cut of the remainder, too.)”
According to the Business Insider, Kay only got back less than 50% of what her videos actually made.
In the end, Kay earned $100,000 a year in gross revenue. However, she only looked at $21,000 annually, after YouTube took an unspecified cut as well as editing costs. The Business Insider has clear stats:
“($100,000 minus $45,000 for YouTube, minus editing costs at $500 per week for 50 weeks, minus 30% for the IRS).”
The music industry is upset that it isn’t able to lay a fair claim on what YouTube purportedly makes. In fact, there has been growing pressure from the music industry for Google to pay up what they deserve. According to Music Business Journal writer Luiz Augusto Buff,
“YouTube can strong-arm the music industry by offering an artificial low price for licenses, compared to similar licenses negotiated freely in the market, because YouTube could instead of paying the license continue using the music content and only take it down after receiving notices from the copyright owners, which has to be done on a case by case basis.”
Google hides behind their practicing by citing DMCA Safe Harbor acts. According to The Guardian,
“Those are the laws governing online services hosting user-generated content, which spare them from liability for copyrighted content uploaded by those users, as long as they remove it when notified by the rightsholders.”
The music industry isn’t buying it. In their 2016 Global Music Report, the IFPI claims that the safe harbor rules are being misapplied. According to them, the rules
“[were] intended to protect truly passive online intermediaries from copyright liability, and not designed to exempt companies that actively engage in the distribution of music online from playing by the same rules as other online music services.”
YouTube, however, does pay for music licenses. The problem is that the safe harbor rules actually protects the service from having those licenses before the music becomes available. If you look at another service like Apple Music, the same safe harbor rules don’t apply; Apple has to pony up the cash to have the music play on their service.
Google denies that a value gap actually exists. Take a look at one quote.
“To date, Content ID has generated more than $1 billion in revenue for the content industry… any claim that the DMCA safe harbors are responsible for a ‘value gap’ for music on YouTube is simply false.”
The company has used the argument that it has paid out over $3 billion in revenue, a number that keeps rising. However, with more legislation coming out in the United States and in Europe, it looks like YouTube may finally have to take steps to address the value gap.