Some cold analysis of the YouTube-Indie labels story, and some long term reflections.
by Serena Manzoli - Get updates of new posts here
So what's going on with Google, YouTube and Indie labels?
There's been so much fuss, indies tearing their hair, lawyers trying to tone it down: I try to sum up the whole thing here for your delight and delectation.
Alright, this is not a music law blog. It is, however, a blog where law and music meet. So, here we go. If you don't know the ante-fact, have a read here or here.
And there's also this update that Google may be revising its position now.
Why is the contract so bad? Wait, is it really bad?
I read the contract. If you don't care about the legal aspects of the thing you'll probably get bored to read this paragraph as much as I got bored to write it. In this case, just skip to the next paragraph.
The contract is horrible under one aspect: the dull, boring, convoluted legalese, which shows its best both in syntax and in vocabulary. This whole, 32 pages long, piece of horror story is here.
Apart from this, the contract is bad for indies, yes. I'm not saying (yet) that Google is abusing its position, that the contract can't be negotiated, that it's morally bad etc. I'm saying that, if I was an indie, I wouldn't be happy to sign something like this. 4 reasons.
1: The royalties. Google is offering indies this:
Audio only music: 65.5% of the service revenue (of which, 10% to publishers and performance rights organizations).
Music videos (the main reason you go on YouTube, right?) the rate drops to 55%: 45% going to labels and 10% to publishers.
Spotify and Rdio pay an aggregate 70% according to this source and this, so slightly better than what YouTube is offering.
Is this clause bad? Abstractly yes, but then it depends on how much the revenue is: if YouTube premium works better than Spotify, then labels get the 55% of a bigger pie. YouTube has, after all, more users than Spotify or Rdio have, and probably more premium users as well.
On the other hand the risk, on the not-too-long term, is that rates will drop down in the whole music industry as a consequence, and it's very much what labels are fearing I think.
And then there's another clause:
It means: if a major agrees to a lower royalty, we'll lower your royalty as well. Now, there are two interpretations of that. According to Mick Masnick of TechDirt, the clause is fully reasonable: if the market changes, and majors need to adjust the rates, indies need to adjust the rates accordingly. Secondly, why should majors want to lower their royalties? "They're going to seek to increase them, rather than the other way around." says Masnick. It makes sense. But someone sees it differently: Guardian journalist and songwriter Helienne Lindvall said that "We’re hearing that a billion dollars has been paid by YouTube to the major labels" in advances for its new service. If it's true -we don't know- then majors will probably agree for a lower royalty, having had the payment up front. And indies will get screwed.
2: The Covenant not to sue clause.
Basically, Google asks indies never to sue them for any claim related to copyright. And this is bad, period.
3: The Catalogue commitment clause
YouTube asks indies to make all of their content available. They have a good reason for that. On the other hand, the clause it's burdensome: it limits the freedom and bargaining power of indies: what if I decide to withdraw my song from YouTube because it monetize too little, and make it available somewhere else?
4: What happen if indies fail to sign the contract?
The Guardian made an excellent exegesis of the situation before the contract was leaked, coming to 3 possible outcomes:
One: YouTube is indeed threatening to block the videos of indie labels: if they don't sign up to the terms of its new paid music service, their videos will be removed from its free service too. Although Vevo-run channels seem likely to stay up.
Two: YouTube will block indie labels from monetisation of their videos on its free service. It's possible that YouTube will leave labels' videos up, but block them from making money from ads in and around those videos – as well as from using its Content ID system to make money from ads shown on videos uploaded by YouTube users featuring their music.
Three: This is all just a big misunderstanding. If indie labels choose not to sign up for YouTube's new paid music service, their videos will be blocked on it, but left alone on the existing free service.
And after the contract got leaked, they didn't know any better. As they put it
Any information about (...) the alleged threats to block labels' channels if they didn't sign up – including whether that means remove them from YouTube entirely or simply block them from making money from advertising – was delivered outside the contract itself.
But option 3 seems very unlikely, and option 1 seems unlikely too. So, probably if you don't sign, your YouTube videos stay there, but you don't get any money from ads. Can't indies just remove them? Sure, but only by asking Google to remove videos of their music uploaded by other users. How come? Didn't you say there's a Content ID system that's able to recognize when someone else uploads a video which features your music? Sure, but apparently Google doesn't really make it work. So a label has to expressly ask YouTube to remove the infringing content. But it's time consuming and you just can't do that for every single video.
So, the contract is bad. Other bad things, apart from the legal chit-chat?
1: Abuse of dominant position. It is quite clear is that Google is bullying because it has a dominant position on the market. The problem is not that indie labels count for the 5% of the music market, although they could obtain much better conditions if they counted more themselves. The problem is that Google is virtually a monopolist. And that's also the reason why the independent music body Impala has formally filed a complaint with the European Commission in Brussels. Monopoly is never good. Not only for indies. It's bad for everyone in the market.
2: Gangsta moves. If it's true what we said above (that Google is keeping the videos on YouTube, but removing the advertising) then it means that they're basically playing in and out the legal field, crossing the line as they want. Think about it. If a label decides not to sign, and wants its content removed - also videos illegally uploaded by other users- Google can do it, but only after the label expressly asks for it: imagine doing that for every single video: it's costly and time consuming, so the videos will likely remain there.. It's not only hypocrite but it's also gangster like. Andrew Orlowski of the Register has cleverly expressed that with:
In short, the move will preserve Google's illegal supply chain by cracking down on its legal supply chain.
In short: I want to sell you my content, but you don't want to pay me what I deserve. Fuck off, then, I'm going to take it away from you. Oops, no wait. I really can't! Because you already own it, but illegally!
3: Where're trust and long term relationships? Let's go ethical now. Google is disappointing. They're bullying, showing the muscles, just as you would expect from a big corporation. They're being arrogant and dismissive.
And painfully short sighted.
Artists are disappointed. Costas Andreou, musician and sound designer, meaningfully said:
"It takes more than a legal template file and a click on a form button to develop a long lasting cultural communication. You need to be able to reach a human being at an email address and on the phone and talk. Shake their hand. Look each other in the eyes.
It is not a matter of awareness, but of choice: if companies are excited about establishing and maintaining profound relationships with artists, they know what to take care of. If they are interested in building and handling asinine machines, that is common knowledge, as well. Calling the trivial availability of a machine and its interface a relationship is not a reasonable approach."
That's very much what I think too. Business relationships are based on trust and respect. An entrepreneur can be, must be, respectful of the society in which he operates. The entrepreneur has a social role, not just an economic role. Naive? Someone else thought the same.
Moreover, music is not just a market, it's a culture. And when you talk about music you shouldn't talk about quantity but quality as well. You're not selling bolt-ons.
The production of indie labels may amount to just 5% of the market, and still, consider how rich and varied it is: and no, I'm not thinking about Adele, sorry, even if her name came out quite often in this debate (but again to testify people keep in mind much often quantity over quality).
What's going to happen next?
Impala has filed its formal complaint to the EU Commission. Frankly, I don't expect anything meaningful to come out of that.
Yesterday the FT reported that Google may want to renegotiate the terms of the agreement. It seems good.
Then there're a few questions that may have a response in a relatively short term:
Will YouTube subscription service work?
Will YouTube competitors grow stronger?
Will indies be able to get better terms, as someone said here?
But on the long term, I think that Google is having its pay-back. Music industry is a market which changes swiftly and abruptly. If Google makes the situation sub-optimal for artists (not for labels: for artists), then something will happen (a new service? a new paying system? fan bases getting more loyal?) and the market will re-adjust on a stage which is optimal for everyone. That's why their arrogance seems silly and short sighted, not only to me.
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