Music industry is singing loud and proud in clash with YouTube

When you’re repeat-listening to songs that are your definition of joy, songs that are open wounds, music that becomes your cultural glue, the business of how you came to hear it – and the mechanics of its distribution – can seem like irrelevant noise.

The economics of music are its percussion – uncelebrated when they chug along, intolerable when they go rogue.

The International Federation of the Phonographic Industry believes that they have gone awry. The organisation, with its unsexy, un-techy and yet pleasingly rhythmic name, has just published its annual “State of the Industry” report. It boasted the upbeat top-line statistic that global recorded music revenues rose 5.9 per cent last year. Prosecco all round? Not quite.

As annual reports go, the federation's one was unusual in two respects. First, the chairman's introduction was by Plácido Domingo. You don't get that kind of class in any old annual report. But mainly it was striking because, amid all the typical corporate nods to "challenges" and "innovation", a clear enemy was identified. Nemesis, thy name is YouTube.

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Back to the good news: a record 50 per cent of 2016’s total revenues of $15.7 billion came from digital. Physical formats may have declined 7.6 per cent and digital downloads 20.5 per cent, but this was more than offset by a 60 per cent surge in streaming revenue. People really loved that Drake song.

It all looks like excellent transitioning work by the music industry, which after a 40 per cent drop in revenues between 1999 and 2014 is now being held up to news media and television broadcasters as an example of how to not only survive, but thrive in the age of Google.

The industry group is not dancing round the livingroom just yet. It won’t be a case of “mission accomplished”, it says, until a market distortion it calls the “value gap” is eliminated. This refers to what it claims is a growing mismatch between the value that Google-owned YouTube extracts from music and the revenue it returns to those who create it (the artists) and invest in it (the labels).

User upload video streaming services, led by YouTube, comprise the world's largest on-demand music audience, estimated at more than 900 million users. But while the 212 million users of audio streaming services like Spotify, Apple Music and Deezer return about $3.9 billion to rights holders, the user upload services contribute the more modest sum of $553 million.

Licensing payments

The federation’s concern here is not whether users are paying for access to music or not, but the wide gap in the rate of licensing payments. While Spotify pays record companies about $20 per user, it says YouTube returns less than $1 for each music user. When you remember that the industry has battled hard for Spotify to pony up, it puts this trickle of YouTube coins into even starker context.

So why not just make better deals? The music industry group argues that it is hampered in doing so because YouTube benefits from a misapplication of “safe harbours” in copyright legislation. These were introduced to protect internet service providers (ISPs) and server hosting companies whenever their customers uploaded content that infringed copyright. As long as some kind of take-down system was in place, they could not be held liable.

But YouTube is not an ISP or a server host. It competes directly with Spotify and other services where “opt-in” deals apply, while obliging rights holders to scour its platform for infringements via tools like ContentID. The music industry says it effectively has no choice but to do business with it, weakening its negotiating hand.

The European Commission, for its sins, has received a letter from Coldplay on the issue – not just from Coldplay, to be fair, but from about 1,000 artists, urging it to take action. It was looking at the whole copyright thing anyway. Last September, it proposed that YouTube should be obliged to use "appropriate technologies" to proactively determine whether they are hosting copyright material without licence.

Distraction techniques

Google has counter-lobbied by turning this into an attack on the internet itself, claiming it will mean “everything uploaded to the web must be cleared by lawyers before it can find an audience”.

As distraction techniques go, “see how the little guys will be hurt” is a good one. But it is a distraction technique. Amazingly, over the years it is copyright holders who have been portrayed as big-business spoilsports, never mind that the music industry is famously home to a long tail of artists struggling to get paid for their work at all.

“The fair remuneration of those that create and invest in music must be a priority in this increasingly digital world,” wrote Plácido Domingo in the industry report. I like to think he sang it.

Recorded music revenues are not growing again because the industry decided one day to roll over and adjust to new realities. The real lesson that other media can learn from it is this: If you want to get paid, you have to fight back, and then keep fighting.