YouTube’s Head of Music: “We’re Not Discussing the Value Gap”

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Lyor Cohen, YouTube’s Head of Music, says that advertising revenues through Google are growing, while subscription revenues will be on par with Spotify and Apple Music.

YouTube’s user base is exponentially larger than that of Apple Music, Spotify, Tidal, and others.  In fact, YouTube boasts a whopping 1.9 billion users, while Spotify has approximately 170 million active users worldwide.  Apple Music has nearly 45 million users, though all of those are paid subscribers.

Those are monster numbers, though YouTube’s royalty payments don’t reflect their massive user base.  Indeed, the company is under constant scrutiny due to their painfully low payments to rights holders.  Compared to other platforms with ad-supported tiers, including Spotify, YouTube pays a tiny fraction on per-stream royalties.

It’s all part of YouTube’s notorious ‘value gap,’ which refers to the massive discount that YouTube pays for content.  Part of the explanation for that lies in UGC-friendly copyright laws: instead of directly licensing music, YouTube lets users upload whatever they want, while shifting the burden of content claiming and management to rights owners.  The result is a brilliantly impossible system to control — much less monetize.

One idea is that artists can ‘make it up on volume,’ though that’s a fantasy for most artists — at least those below the level of Childish Gambino, Taylor Swift, and Ed Sheeran.

YouTube says its new subscription service’s royalty payments will be on par with Apple Music and Spotify.  But it won’t talk about the ‘value gap.’

“I do know, from every single senior executive, that we’re not discussing the value gap,” Cohen tells Music Week. “We’re discussing how to maximize our funnel and how to grow the business, how to be better partners with them. It’s nice.”

That contrasts starkly with developments in Europe, where EU parliamentarians are preparing to vote on Article 13, part of the larger Copyright Directive.  Article 13, if passed, would force YouTube to install copyright filters for every upload, and impose harsh penalties for infringing content that slips through.

It’s a strong antidote to the ‘value gap,’ and one supported by more than one hundred music and media organizations in Europe.  The measure could dramatically change YouTube’s loophole-heavy business model, and frankly, change the entire music industry with it.

Suddenly, YouTube Music’s premium-focused rollout has a brand-new urgency to it.

But with 1.9 billion active users, it’s surprising that the behemoth service isn’t leaps and bounds ahead of the other music streaming platforms when it comes to payments.  But YouTube’s ad-funded tier just isn’t cutting the mustard.

So, just wait for things to get better?

The ad-funded tier is used by the “people who pay with their eyeballs,” as Cohen states.  Sounds like a pull quote from a Fast Company article in the 90s, though Cohen wasn’t speaking ironically.

Cohen tells the music business to look at YouTube as a whole. “If you talk about the entire business; discovery, promotion, advertising, and subscription, we’ll be an important contributor,” he says.

Truthfully, YouTube has launched the careers of many superstars, including Canadian pop star Justin Bieber, the late Christina Grimmie, and more.  It has much more to offer than just per-stream revenues, though why not offer money and exposure?

Actually, Cohen says that advertising revenues are actually poised to explode.  That echoes earlier estimations from Barclays, who projected huge advertising gains from Spotify.

“When it comes to sub-primacy, everyone’s focused on subscription,” Cohen adds. “Go to the industry and ask how many people they hired that are experts in advertising.  Zero.  Talk to executives and it’s all about subscription.

“So all I can say is, blink and you’ll see our advertising business doubling and doubling.”