by : Featured Articles, Music Law, September 2016

YouTube’s Value Gap

YouTube’s Value Gap

In the beginning of the XXth Century music consumption did not compare with today. Music publishers, for instance, were used to generate revenue mostly through the commercialization of printed sheet music. But much like the current moment, innovators were disrupting the music scene, bringing to market new inventions like the record player and piano rolls. These inventions transformed the way music was brought to people’s ears. And composers and publishers were not being fully compensated for the use of songs because the legal system at the time was not structured to compensate them for these new technologies. In 1908, the Supreme Court even ruled that manufacturers of music rolls for player pianos did not have to pay royalties to composers (White-Smith Music Publishing Company v. Apollo Company).

Congress eventually adapted to the marketplace and enacted the Copyright Act of 1909, implementing a Compulsory Mechanical License allowing anyone to make a mechanical reproduction of a musical composition without the direct consent of the copyright owner, provided that the person adhered to the provisions of the license which included a royalty payment at a rate set by the Copyright Royalty Board. Congress intended it to primarily govern piano rolls, but in fact this compulsory license made it possible to develop later a market for phonorecords, in which music publishers and composers were compensated in tandem with the commercialization of the recorded music product by the record labels and their artists.

By the end of that century, a new wave of innovation occurred with the advent of the Internet. Anticipating the potential issues arising therein, in 1998 Congress enacted the Digital Millennium Copyright Act (DMCA). Amongst other provisions, the DMCA created certain exemptions from liability for copyright infringement by Internet Service Providers (ISPs) and other intermediaries. These so-called Safe-Harbor provisions allowed the emergence of new forms of media distribution and put a system in place which allowed content to be removed from a website at the request of the copyright owner. Similar provisions were concomitantly passed in Europe.

YouTube could only operate legally due to these safe harbor provisions. The global video-sharing website founded in 2005 and acquired by Google in 2006, quickly became one of the most popular websites in the world, and currently accounts for 40% of all music listening. More people currently listen to music on YouTube than all other on-demand streaming services combined.1

Despite its popularity among music fans, recently, YouTube has been the target of a strong backlash from music industry executives and artists, as part of a public relations effort to influence negotiations between the major record labels and YouTube. The current licensing deals are about to expire later this year.

The central argument of the record labels is that there is a “value gap” between what YouTube is willing to pay for music licenses and their real market value. 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.

The IFPI, in its Global Music Report of 2016 claims safe harbor rules are being misapplied, because they were originally “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.2

YouTube’s Head of International Music Partnerships, Christophe Muller, in a response to the music industry claims, affirmed that the video platform has licensing deals in place through which they’ve already paid out $3 billion to the music industry, and that 50% of it comes from user-generated content, identified and claimed by the rights’ holders through their automated rights management tool, ContentID, which handles 99.5% of the infringement claims on their platform.3

Heating up the war between content and technology, is Irvin Azoff, one of the most powerful players in the music industry and the head of Global Music Rights, a new company that collects on public performance royalties. In an open letter published widely, Azoff writes that YouTube should grant more control to rights holders on how their material could be used within the platform. Content owners should decide if their product is to be available for free, or only behind a pay-wall — namely, the paid subscription service YouTube Red, where YouTube’s original video content is made available exclusively. Azoff continues pressuring YouTube to let rights’ holders decide whether or not they want to have their content available in the platform at all. He suggests replacing the take down of unauthorized uses on a case by case basis with a “stay down” system, in which content owners would be able to opt-out of the website and not have their music available within the website.4

Congress, through the Copyright Office, is currently performing a study to possibly review Section 512 of the DMCA.5 The issue of remuneration on YouTube is one of the few in which the labels, publishers, and artists concur. Many of them filed a petition to the Copyright Office pledging reform, and more recently 180 artists, including Taylor Swift, Paul McCartney, and Kings of Leon, ran an ad campaign in political magazines in Washington, DC calling for changes to the Digital Millennium Copyright Act. A similar letter was signed by more than 1,000 acts addressed to the president of the European Commission, pledging reform of similar provisions in European law.

In the meantime, artists are finding some of their own ad hoc solutions.   As long as they can put out content periodically, they can collect through unconventional means. The band Walk Off The Earth made $10,325 for every video they released on YouTube by using Patreon. This is a crowdfunding platform created by Jack Conte, half of the duo Pomplamoose and a prolific YouTuber. Patreon depends on steady fan funding, and Walk Off The Earth reached out to its fan base, 1,400 of which contributed. New possibilities for music financing are also driving the market, and offering alternatives when the wheels of legislative change turn slowly.

By Luiz Augusto Buff


1.http://www.digitalmusicnews.com/2015/10/09/youtube-accounts-for-40-of-all-music-listening-and-4-of-all-music-revenues/

2.http://www.ifpi.org/news/IFPI-GLOBAL-MUSIC-REPORT-2016

3.http://youtubecreator.blogspot.com.br/2016/04/setting-record-straight.html

4.http://www.recode.net/2016/5/9/11609494/irving-azoff-youtube-artists-streaming-music

5.http://www.copyright.gov/policy/section512/

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