Hello and welcome to Issue #29! Please excuse Side A&B's absence over the last couple of months, as life has been exceedingly busy leaving me with little time for reflection and writing. More coming soon though!

YouTube Past & Present: Can 2019 Be The Start Of A Better YouTube?

YouTube’s entrenched standing as the leading online destination for music globally serves as a testament to the occasional upside to be found in asking for forgiveness over permission.

When the video platform launched in February 2005, it became littered with user-generated content and rapidly became the place to watch videos online, as it remains today. If the first year of YouTube had a slogan, it would have been “anything goes”. Unsurprisingly, a sizable portion of the user-generated content uploaded to the platform was music, effectively turning YouTube into a post-Napster breeding ground for copyright infringement; though one which was uniquely protected by safe harbour loopholes in copyright law, and could effectively avoid legal liability for copyright infringement so long as it complied with takedown requests from rights holders.

The music business meanwhile, was reeling following half a decade of declining revenues, with its approach to tackling piracy having been derided for being both heavy-handed and largely ineffectual, and a pervading sense that the industry had been utterly inept at embracing and adapting to the new digital world. There was great discontent at labels even at this early stage that their music was already all over YouTube, bound to a game of legal whack-a-mole. As it would prove time after time in the ensuing decade, your negotiating position is undermined in licensing talks if your content is already on a platform.

However, there was ultimately a growing acceptance that the music industry needed to do more to drive revenues online. It is worth noting that YouTube was still a loss-making and independent company at the time, lacking the means to compensate the industry with a fixed per-stream rate. However, the platform had waltzed at a canter to first place on the online video leaderboard even in its very first year, all while promising the potential of its fledgling advertising business. Additionally, and to its credit, YouTube had shown signs of willingness to work constructively with the music industry. The two sides began talks in spring 2006, with key sticking points during negotiations including a content recognition system, to which YouTube would agree and eventually build Content ID.

On September 12th 2006, then-CEO of Universal Music Doug Morris spoke at a Meryll Lynch investors conference and, in what was likely a negotiating tactic, labeled YouTube as “copyright infringers [that] owe us tens of millions of dollars”. One week later on September 19th, Warner Music became the first label to sign a licensing deal with YouTube, agreeing to a revenue share based model and also securing a small stake in YouTube. On October 9th, YouTube was acquired by Google for $1.65bn, a deal which (not coincidentally) landed on the same day as two further licensing deals with Universal Music and Sony BMG. The last-minute licensing deals were likely enticed by the promise of Google’s increased advertising prowess, and also conveniently came with minority stakes in YouTube; the New York Times reported that the labels collectively stood to receive around $50m, which pales in comparison to more recent payouts from Spotify, but made for an easy and quick quarterly boost during a difficult period for the industry. Over time, those hastily negotiated early deals would prove fateful; a reverse Venus flytrap locking YouTube and consequently Google into an entrenched revenue sharing model with the music industry, which remains the status quo today.

Fortunately, the music industry has adapted to become a digital-first, dare I say occasionally rather innovative industry in the 13 years since its initial YouTube deal. The relationship has, however, been persistently tumultuous, characterised by a succession of re-negotiation rounds “under very difficult circumstances” to quote Warner Music CEO Steve Cooper in 2017, and numerous licensing standoffs with collecting societies. This notably included a seven-year impasse with GEMA which affected music videos in Germany, and a six month period in 2009 during which a portion of catalogue was blocked in the UK during a dispute with the PRS (and amusingly served to highlight the sheer amount of unfiltered user-uploaded music content on YouTube). Economic differences have and continue to be at the heart of these disputes, and also at the heart of pretty much every trade report emerging from the music business in the last three years decrying the value gap.

YouTube’s advertising business today is robust, and is believed to have reeled in $15bn last year. However, while YouTube’s revenue-sharing agreements have driven high margins at scale for the video platform, the lack of fixed minimum fees has meant that YouTube does not pay enough to content creators (and far less than Spotify’s ad-supported tier). As it has turned out time and time again, advertising alone is not a sustainable model for a vast majority of content owners out there. That’s not a YouTube problem; it’s the same for Spotify, and across Tencent’s music properties (which have wonderfully diversified revenue models that aren’t advertising-centric!). But on YouTube, the low payment problem is exacerbated partly due - as its executives have admitted - to its extremely global reach into markets with lower ad CPM, and additionally due to licensing differences to audio streaming services like Spotify, which has a fixed minimum fee for all ad-supported content consumed on its platform regardless of whether an advert is actually served against that specific piece of content. Consider that around 40% of videos on YouTube don’t have adverts shown against them, and that’s not to even mention adblockers...

Frankly, the sheer force of YouTube, imbued with Google’s historical aversion to adopting a truly copyright-friendly approach and paired with a willingness to exploit and leverage market-distorting safe harbour loopholes, has outstripped and overpowered the music industry at every turn to date. The dynamic could however be set to change this year, at least in Europe.

The EU Copyright Directive is essentially a sweeping series of upcoming reforms to outdated copyright law, geared towards manifesting the EU’s objective of a harmonious and prosperous Digital Single Market and to “stimulate innovation, creativity, investment and production of new content“. The directive was passed by the European Parliament in September and is currently days away from the text being finalised, as expected on January 21st. As a whole, the majority of the directive’s articles have caused no controversy at all and have nothing to do with the music industry or YouTube, with one article concerned with libraries and another with sports event organisers.

Article 13 however, which places greater responsibility and potential liability on online platforms for copyright infringing content uploaded by users, has ruffled quite a few feathers. Google has fiercely lobbied against Article 13, arguing that it would undermine, discourage or even prohibit platforms from hosting user-generated content. The extent to which YouTube has reacted to fight and sensationalize Article 13 (#SaveYourInternet) is really quite something, with underhanded tactics such as campaign groups linked to Google lobbyists sending tens of thousands of bot-generated email and social media messages to MEPs, and even more bizarre attempts to scare/enlist the support of children.

As the final text that will comprise Article 13 is drawn up and announced in the next week, while it has been painted by YouTube as the possible death of online creativity and memes, the reality, as is usually the case in matters of law, is that the devil will be entirely in the details. There remain key questions at this stage about how what exactly the final text will include, notably pertaining to whether/the extent to which upload filters became compulsory (regarded as expensive and unreliable with distinguishing between types of content). Precisely where and how lawmakers decide to draw the line with regards to liability for infringing content is also crucial, with the final text expected to contain guidance on how online platforms can demonstrate that they have done enough to avoid liability, perhaps with a ‘stay down’ provision for infringing content to be included.

The version of Article 13 that will become law is likely to be firm, but measured and sensible, with protections built in to avoid the sprawling unintended consequences which critics have hypothesised and decried. Lawmakers will be intimately familiar with both sides, and will not seek to tip the scales in the favour of rights holders, but rather to rebalance them and close safe harbour loopholes which YouTube have historically exploited. As a respected media industry veteran quipped to me last year, Article 13 was tailored specifically for YouTube - had YouTube never existed, there would be no Article 13. Perhaps Article 13 seems draconian, but it is in equal measure necessary.

The response to the passage of the law may prove to be fascinating. The prospect of a nuclear option where YouTube abandons music or blocks large amounts of music on its platform has been floated recently. Or perhaps labels may feel emboldened in renegotiations with YouTube and pursue foolhardy disputes which result in music being taken down. To state what should be plainly obvious, if reluctantly admitted in the c-suites of the music business, YouTube is an invaluable platform for music; it is global like no other with an audience of unique scale, and plays a pivotal and growing role in artist development and discovery. Music leaving YouTube in Europe would be the largest self-immolation since the United Kingdom’s own pending European departure.

The best case post-Article 13 scenario may be increasingly likely however: for the music industry and YouTube to reconfigure its adversarial relationship into a deeper, symbiotic partnership. The catch would be that YouTube would need to be willing pay more to rights holders, perhaps paying upfront advances or agreeing to even a tiny minimum fixed rate per stream (practically all other music streaming services do both). Yes, this will impact YouTube’s bottom line, but might that be a price worth paying in order to fix relations with the music industry, particularly given that YouTube is no longer a loss-making startup as it once was? Remember Apple’s Taylor Swift moment just prior to the launch of Apple Music, when the company publicly reversed policy and agreed to pay artists for trial streams following an open letter by the popstar? The move drew money-can’t-buy PR and much goodwill for Apple Music, which has settled itself in the music industry’s good graces (mostly) ever since.

Goodwill aside however, there is a compelling business case for YouTube to indeed extend an olive branch. YouTube has invested ‘hundreds of millions’ annually in video originals, which have been hit-and-miss, mostly drawing show-specific audiences that have largely failed to stick around and convert to long-term subscribers. The accelerating multi-billion original content budgets of Netflix and Amazon leave YouTube’s premium video efforts competing on pennies to the dollar, and YouTube has indicated it will pull back spending on video originals moving forward.

But while scripted premium video with its disparate audiences is a largely unproven quantity on YouTube, music has been proven to attract and retain audiences to the video platform, despite what can often be characterised as reluctant support from the music industry. A truly reciprocal relationship, at a time when artists are rendered largely faceless on streaming services and face a growing need for an all-encompassing social destination capable of cultivating fan communities, could serve to elevate and further differentiate YouTube from the pack as the global social music destination of the future.