YouTube’s Value Gap is the Record Industry’s Biggest Problem To Fix, and Here’s Why…

If the record industry is serious about growing streaming revenues (and the digital economy in general) it must address the problems with the exploitative practices of Google’s YouTube. We’ve been lucky to be supplied with Content ID data from the same source as our previous data – so we added that into the mix to see where it would rank.

These numbers are just staggering.

If you combine Content ID to the YouTube Subscription numbers you arrive at a whopping 63% of total streaming market share that only contributes  11% of revenue. Ya’ll taking notes here?

yt_istheproblem

 

Look at the combined YouTube revenues of Subscriptions and Content ID together at 11% of revenue. That puts the combined earnings at #3 in market share behind Apple Music. However, Apple Music creates more earnings than the two combined YouTube Revenue streams with less than 4% of the consumption. You’ll also notice that YouTube is the only streaming service with three zeros following the decimal point. That means YouTube is paying hundreds of dollars per million streams while the other leading streamers are paying thousands.

Apple Music generates 12% of revenue with less than 4% of streams. YouTube generates 11% of revenue with 63% of streams. Does that sound like a problem to anyone else?

As of this writing we’re not factoring in the direct channel uploads for artists to YouTube or Vevo, however we just can’t imagine that those numbers are much different in terms of plays versus revenues. We hear from a lot of label folks that they are afraid to give up their annual revenue from YouTube sources, but all we can say is that you’d be gaining more much more than you would be giving up.

We’ve heard of at least one executive who met with resistance when faced with the prospect of potentially walking away from millions of dollars a year in YouTube revenues. But, it’s not walking away from millions, it’s giving up 10’s of millions in true revenue.

Let us not forget, that this devalued revenue will prevent the overall growth of streaming as a format. With streaming revenues (largely from Spotify and Apple Music) now accounting for approximately 40% of overall digital music revenues why should YouTube be able to pay 1/10th of the other major players? Oh, that’s right because of user pirated content uploads…

It’s time for the record business to get serious about cleaning up YouTube.

 

After 16% drop in Per Stream rates, Spotify asks for another 14% Reduction…

We can’t make this up. We’ve stated many times before, as the consumption of streams increase (and those services grow) the per stream rate will drop as revenues level off. This is simply because revenues can not keep up with consumption, and there is no fixed per stream rate.

In our latest look at streaming rates we found that Spotify streaming rates had dropped 16% from 2014 to 2016. Now, Hypebot is reporting that Spotify is asking for another 14% reduction in royalty payments.

Please someone break out a calculator… that would be a 30% reduction in per stream rates in two years! It’s just math. Wow.

Read the full story at Hypebot:

Spotify’s Latest Offer To Labels: A 14% Lower Royalty Rate | Hypebot

Windowing Works! 9 of the Top 13 UK Albums NOT on Spotify…

Windowing isn’t just for Adele and Taylor Swift anymore, Music Business Worldwide reports the following:

Four of the Top 5 current UK midweek albums aren’t on Spotify – and are, streaming wise, particularly fragmented.

A quick scan down the rankings, sent to labels today, shows that the same fact applies to five of the Top 6, six of the Top 10 and nine of the Top 13.

We started suggesting that windowing was one of several viable solutions to combat the negatives effects of streaming music ubiquity as early as 2013 when we stated “Why Spotify Is Not Netflix, But Maybe It Should Be“.

We were told we were “out of touch”, “luddites” and we “didn’t understand the new digital economy.” But we persisted on this point with additional writing in 2014, “How To Fix Music Streaming In One Word, Windows“.

Again, many resisted what is just common sense. The record industry always had utilized windows (or windowing as some prefer), but it just looked a little different than the way the film business did it. But it was there, and it always had been there.

In a December 2015 post we got more specific, suggesting that record labels experiment with more disruption and innovation following Taylor Swift and Adele successfully windowing off of Spotify during the initial release window of their latest releases. We wrote, “Three Simple Steps To Fix The Record Business in 2016… Windows, Windows, Windows…“.

In that post we included this:

This is not a philosophical discussion. This is financial reality. Respected stock analyst Robert Tullo who is the Director Of Research at Albert Fried & Company says this:

Longer term IP Radio and Spotify are good annuity revenue streams and great promotional tools. However, we believe the system works better for everyone when artists have the right to distribute their Intellectual property how they see fit.

Ultimately we think windows for content will form around titles that look much like the Movie Windows and that will be great for investors and the industry as soon as all these so called experts get out of the way and spot trading fashionable digital dimes for real growth and earnings.

So here we are in the spring of 2016. As simple math and economic reality effects more artists, managers and labels first hand the truth becomes self evident.

YouTube is the next windowing battle to a restoring a healthy economic ecosystem for artists. You can’t window if you can’t keep your work off of YouTube. That’s not YouTube, that’s YouLose…

Spotify Per Play Rates Continue to Drop (.00408) … More Free Users = Less Money Per Stream #gettherateright

Down, down, down it goes, where it stops nobody knows… The monthly average rate per play on Spotify is currently .00408 for master rights holders.

PerStreamAvg_Jun11_July15

48 Months of Spotify Streaming Rates from Jun 2011 thru May 2015 on an indie label catalog of over 1,500 songs with over 10m plays.

Spotify rates per spin appear to have peaked and are now on a steady decline over time.

Per stream rates are dropping because the amount of revenue is not keeping pace with the  number of streams. There are several possible causes:

1) Advertising rates are falling as more “supply” (the number of streams) come on line and the market saturates.

2) The proportion of  lower paying “free streams”  is growing faster than the proportion of higher paying “paid streams.”

3) All of the above.

This confirms our long held suspicion that as a flat price “freemium” subscription service  scales the price per stream will drop.  As the service reaches “scale” the pool of streaming revenue becomes a fixed amount.  The pie can’t get any larger and adding more streams only cuts the pie into smaller pieces!

The data above is aggregated. In all cases the total amount of revenue is divided by the total number of the streams per service  (ex: $4,080 / 1,000,000 = .00408 per stream). Multiple tiers and pricing structures are all summed together and divided to create an averaged, single rate per play.

Are Creators Really Thriving in the Digital Age? Doesn’t Look Like It | Robert Levine @ Billboard

“Free Ride” author Robert Levine takes on Steven Johnson’s stats and conclusions…

In this weekend’s New York Times Magazine, author Steven Johnson wrote a piece, “The Creative Apocalypse That Wasn’t,” which ventured to examine the state of creative business in the digital age. Johnson conclusion was that it’s thriving. I have strong feelings on this topic, since I wrote a book that makes the opposite argument. I’d very much like Johnson to be right, since the health of the creative business strongly correlates with my ability to put food on the table. But although I think he’s a smart writer — we worked together, briefly, years ago — I think he’s looking at wrong information in the wrong way. He ends up oversimplifying a complicated subject to make a contrarian point.

Johnson’s premise is that the best way to assess the health of the creative businesses isn’t to look at falling sales or struggling companies but how actual creators themselves are faring. It’s a smart, refreshing approach. But his evidence that creators are thriving is far flimsier than it looks.

READ THE FULL STORY AT BILLBOARD:
http://www.billboard.com/articles/business/6677568/are-creators-really-thriving-in-the-digital-age-doesnt-look-like-it

Michael Price: Composer for Sherlock blames Google and YouTube for suppressing rewards songwriters receive | Independent UK

More artists, performers, songwriters and composers are getting it.

“YouTube are effectively paying incredibly low rates and are not a willing partner to negotiate licences and that pulls down the rates from someone like Spotify, which has to compete in their free service with YouTube,” he told The Independent on Sunday.

“The value from the music we create is being sucked out into the companies that aggregate it, [but] YouTube … are not happy to set adequate streaming rates. There is a huge shift of value from artists to tech companies.”

READ THE WHOLE STORY AT THE INDEPENDENT UK:
http://www.independent.co.uk/news/media/michael-price-composer-for-sherlock-blames-google-and-youtube-for-suppressing-rewards-songwriters-receive-10447054.html

Did Google & YouTube just Scam The Entire Record Business into Free Streaming Licenses? MusicKey is MIA…

Remember all the controversy over YouTube’s ad-free streaming subscriber service, MusicKey? If the words “Google” and “Ad-Free” sound like a complete contradiction, you are not alone.

MusicKey_AdFree

Ok, so where is it? We tried to sign up, but we’ll be notified later when the service is available.

whenMusicKey

Remember how one of the requirements was ALL OF YOUR MUSIC also had to be licensed for FREE STREAMING on YouTube or your promotional videos would be blocked or banned from the site?

Did you forget? No worries, here is the recap from Zoe Keating’s blog that brought the issue to light.

1) All of my catalog must be included in both the free and premium music service. Even if I don’t deliver all my music, because I’m a music partner, anything that a 3rd party uploads with my info in the description will be automatically included in the music service too.

2) All songs will be set to “montetize”, meaning there will be ads on them.

3) I will be required to release new music on Youtube at the same time I release it anywhere else. So no more releasing to my core fans first on Bandcamp and then on iTunes.

4) All my catalog must be uploaded at high resolution, according to Google’s standard which is currently 320 kbps.

5) The contract lasts for 5 years.

So, “All songs will be set to “montetize”, meaning there will be ads on them.” That’s one hell of a trade-off to get some subscription money, but maybe it won’t be so bad once that MusicKey money starts rolling in right? YouTube and Google have a HUGE amount of users to convert to PAYING SUBSCRIBERS, right?

Hahahahahahahahahaa. You fell for that gag? Seriously? Here’s what YouTube says about that little side business of PAID SUBSCRIBERS…in an interview between YouTube Senior Exec Robert Kyncl and Music Ally: YouTube Music Key delay ‘nothing too serious’ says senior exec.

“We’ll always have ad-supported: that’s our core, and we’ll never stop focusing on it.  It’s in Google’s DNA to be in the ad-supported business.

Subscription is just an add-on. It’s an adjacent business that we’re building.”

Suckas… You seriously thought Google who has slathered the internet with advertising on “User Pirated Content” across multiple platforms was going to pivot to a paid subscription model to move away from advertising on it’s flagship video streaming site? Really? Seriously?

You saw that five year term, right? So MusicKey is a no show for subscriber revenue but thanks to that five year term the largest streaming service in the world, that pays the least amount per stream now has licenses for the next half decade. As the kids say, LOL.

Don’t worry about MusicKey not showing up anytime soon with that Paid Subscriber Money, in the meantime enjoy your life’s work as a YouTube auto-generated music video and playlist, for free.

Oh MusicKey we would have loved to have known you – now all we have is our catalogs of master recordings being monetized on old-school YouTube for pennies on the dollar of every other streaming service including Spotify. Wow, just wow.

And Speaking of Spotify, guess who has a seat on the board to make sure that their “ad-supported DNA” remains the primary focus of that music streaming service? Three guesses… Yup, it’s Google.

Here’s a trip down MusicKey memory lane…

April 2014 : Exclusive: ‘YouTube Music’ Is Launching This Summer… | Digital Music News

June 2014 : Artists who don’t sign with YouTube’s new subscription service to be blocked [Updated] | Ars Technica

June 2014 : F*&K It: Here’s the Entire YouTube Contract for Indies…| Digital Music News

November 2014: YouTube’s MusicKey Will Cause $2.3 Billion In Music Industry Losses… | Digital Music News

January 2015 : YouTube Is Removing Any Artist That Refuses to License Its Subscription Service…| Ars Technica

April 2015 : If You Don’t Agree to YouTube’s New Ad-Free Terms, Your Videos Will Disappear…|Digital Music News

June 2015 : YouTube Music Key delay ‘nothing too serious’ says senior exec | Music Ally

Exhausting… Why would anyone trust these people? All hail “User Pirated Content“… and if that doesn’t work just come up with a non-existent paid subscriber streaming service that auto-generates music videos and playlists on the free, ad-supported platform. At least that part is working, right?

Let’s talk about transparency for a second. Why is it that YouTube would be excluded from Google’s own DMCA tracking report? It couldn’t be because DMCA notices and takedowns of infringing material YouTube dwarf even the most notorious of pirates sites say like The Pirate Bay? No, that wouldn’t be the reason would it?

553k_InfringingBusinessesMaybe #adbusters and #blackspot really do have it right…

Music Artists Take On the Business, Calling for Change | New York Times

The New York Times quotes representatives of the artists rights movement including Blake Morgan of the #irespectmusic campaign, Melvin Gibbs of C3Action.Org (Content Creators Coalition), David Lowery of the Trichordist as well as musicians Zoe Keating, David Byrne and others.

“None of these companies that are supposedly in the music business are actually in the music business,” Mr. Gibbs said. “They are in the data-aggregation business. They’re in the ad-selling business. The value of music means nothing to them.”

READ MORE AT THE NEW YORK TIMES:
http://www.nytimes.com/2015/08/01/business/media/music-artists-take-on-the-business-calling-for-change.html

“User Pirated Content” Is Core Internet Advertising Model (Which is Why Streaming Rates Can’t Increase Until Piracy is Decreased)

Google’s YouTube is a business built on infringement as a model. So called “User Generated Content” is really just code for what the majority of the high value media on YouTube really is, “User PIRATED Content“.

In other words there’s nothing internet advertising loves more than illegally monetizing the work of professional creators, and thus driving down the true fair market rates for those works (keep this in mind when thinking about Spotify and streaming services!).

Below are excerpts from emails discovered during the Viacom Vs. YouTube lawsuit and published  by DailyFinance:

• A July 29 email conversation about competing video sites laid out the importance to YouTube of continuing to use the copyrighted material. “Steal it!” Chen said , and got a reply from Hurley, “hmmm, steal the movies?” Chen’s answer: “we have to keep in mind that we need to attract traffic. how much traffic will we get from personal videos? remember, the only reason our traffic surged was due to a video of this type.”

And this is not the only smoking gun, here’s a quote from DailyTech regarding Google’s Ad Sales and the site EasyDownloadCenter: 

In fact, Google’s ad teams even made suggestions designed to optimize conversion rates by using keywords targeted to pirated content – such as suggesting downloading films still in theatrical release, that obviously were not available yet in any authorized format for home viewing.

According to PCWorld this added up to some decent money…

EasyDownloadCenter.com and TheDownloadPlace.com generated US$1.1 million in revenue between 2003 and 2005, and Google received $809,000 for advertising, the Journal reported.

Both YouTube and Google Search function similarly by monetizing infringing “User Pirated Content” with advertising. On YouTube users upload infringing music and videos of all varieties which attract the consumers to the globally dominant and monopolistic video streaming site.

Remember the email above where the YouTube founders admit “how much traffic will we get from personal videos? remember, the only reason our traffic surged was due to a video of this type”. And by “this type” they mean professionally produced and created media by artists, musicians, filmmakers and other creative professionals that are of high value in attracting an audience – an audience that can then be monetized with advertising.

Google Search operates in very similar way (no coincidence) by monetizing (mostly with advertising) millions infringing URLs on sites primarily dedicated to distribution of copyrighted works via p2p networks and bittorrent.

Over 50 Major Brands Funding Music Piracy, It’s Big Business!

LouReedCHEVY

But don’t take our word for it, here’s a report from DigiDay (owned by The Economist):

According to AppNexus CEO Brian O’Kelley, it’s an easy problem to fix, but ad companies are attracted by the revenue torrent sites can generate for them. Kelley said his company refuses to serve ads to torrent sites and other sites facilitating the distribution of pirated content. It’s easy to do technically, he said, but others refuse to do it.

“We want everyone to technically stop their customers from advertising on these sites, but there’s a financial incentive to keep doing so,” he said. “Companies that aren’t taking a stand against this are making a lot of money.”

What about the removing infringing material with a DMCA notice you ask? Well, we’re glad you did… here’s how it “works”…


DMCA “Takedown” Notices: Why “Takedown” Should Become “Take Down and Stay Down” and Why It’s Good for Everyone | Nova Edu


 

Safe Harbor Not Loophole: Five Things We Could Do Right Now to Make the DMCA Notice and Takedown Work Better


 

Why Digital Exec’s ARPU is Bad Math and also Bad Philosophy for Artists.

ARPU. Do you know what that is? It’s Average Revenue Per User. Not withstanding the insulting connotation of referring to fans as “users” this is just bad on a number of different levels.

Leaked Sony emails suggest that digital music executives confuse per-capita with ARPU. One of the items we’ve found cruising wikileaks has digital music execs explaining the digital landscape ARPU as follows:

$120 Streaming Subscription

$68 Downloads

$3 Ad-Supported Streaming

We’ll get into the fallacy of the $68 Downloads vs the $120 Streaming Subscriptions in a minute. But first, let’s just look at the fact the industry digital execs actually clocked ad-supported ARPU at $3 per user per year and did it anyway! Seriously? Really? Who thinks going from $68 to $3 is a good idea and then doubles down on trying to get sell in on it? Wow, just wow.

Ok, now back the $68 Downloads ARPU. The question that never seems to be qualified in these ARPU valuations is how many users exactly contribute to the revenue pool to end at up an average of $68 per user? The next question would be how many of those “average” users are paying significantly more than $68? Hell, how many are paying significantly more than $120 per year?

In a basic 80/20 model we would expect that 80% of the revenue would come from 20% of the consumers (er, um… “users”). This means the most valued “users” are now being artificially flattened DOWN to $120 per year.

Streaming Subscription fees as a representative of ARPU doesn’t work, because there are only TWO numbers that can be worked into the average, $120 and zero. So now you have the problem of trying to raise the causal user up to $120 per year while you’ve flattened down your best costumer (er, user). This is the crazy rational behind dropping streaming subscriptions down below $120… But wait… wouldn’t that just also artificially flatten the overall market even lower than the $120 ARPU? Yeah… you bet it would.

It’s truly astounding the lack of ability to use calculators and do simple math. We’ve pointed this out again and again. Even at 90 Million Paid Subscribers at $120 per year, that only generates $7.5b in industry revenue. Ninety Million Paying Subscribers. Just keep saying that over and over until it sinks in.

Subscriptions artificially flatten the market and require extremely high (and largely unrealistic) subscriber numbers because the actual number of “users” consuming music is probably at least double 90 million in the USA. That’s where an ARPU of $68 starts to make sense, somewhere around 110-155 million consumers, but most likely even higher. So, here’s the rub – who really believes that Spotify (or all subscriptions streaming services combined) are going to convert 10s of millions of casual consumers/users into $120 per year ARPU’s? They’re not and that’s why this model is screwed.

ARPUisBAD

For streaming to truly mature the industry needs to embrace tier based, value pricing, so that a truly dynamic and flexible ARPU can be restored. The one size fits all Streaming Subscription ARPU is a lie, and the math shows us why.