Here’s why the music labels are furious at YouTube. Again.

Peter Kafka recode.net  4/11/16

You’ve heard this song before: The music industry is mad at YouTube.

In the old days, the music business used to complain that YouTube took their music and didn’t pay them. Now the complaint has changed: Now the music guys say YouTube doesn’t pay them enough.

The music labels have been grousing about YouTube for a while now, but they have recently turned up the volume.

Last month, the RIAA, the labels’ American trade group, lobbed a volley at Google’s video service, arguing that YouTube doesn’t pay a fair price for all the music it gives its users for free. The IFPI, the label’s global trade group, should have a report out shortly which repeats the same charge.

The complaints come as the big three music labels — Universal Music Group, Sony and Warner Music Group — are set to renegotiate contracts with YouTube.

It would seem like the best way to get more money from YouTube would be to get a better deal this time around. But the labels say their bargaining power is reduced by the 1998 Digital Millennium Copyright Act, which gives broad protection to YouTube and other services that rely on content that users upload.

I asked RIAA head Cary Sherman to explain his industry’s beef with both the DMCA and with YouTube. Here’s an edited excerpt of our conversation. There’s also a response of sorts from YouTube at the end.

Peter Kafka: I don’t understand why the industry is complaining about YouTube and its use of the DMCA again. Viacom spent years on this in court, and got soundly defeated. Hasn’t everyone learned to accept this by now?

Cary Sherman: We accept the inevitability of death. It doesn’t mean we have to like it. There is now under way a study of whether the DMCA is actually effective and fulfilling its intended purpose, being conducted by the Copyright Office, and it has given us an opportunity for the community to collect our thoughts about just how dysfunctional the DMCA actually is. And to actually tell the government about it.

A lot of people would argue that the DMCA allowed Silicon Valley to build really big, really amazing and wonderful things. And that on the whole it’s a net plus for the U.S. and the world.

That assumes that only with the DMCA, as it was written in 1998, would that have been possible. We feel like the 1998 Internet is not the Internet of 2016. It’s a dramatically different Internet, and it’s time to take a fresh look at whether the balance that was struck in 1998 is effective in 2016.

And the answer is clearly “no.”

Just look at Silicon Valley. They’ve done an extraordinary job, and their market cap is worth gazillions of dollars. Look at the creative industries — not just the music industry, but all of them. All of them have suffered. We’re half the size we were. And we’re flat, and we haven’t been growing. And that’s true of all of the creative industries.

For the music industry, 70 percent of revenues now come from digital. We’ve licensed every different kind of model, but the revenues just aren’t coming in.

One of the problems is piracy, which continues to be a problem. The other is under-monetization, and that’s because of things like the DMCA, where some companies get the benefit of being able to distribute our content, without taking fair market value kind of licenses.

When you compare what we get when we get to freely negotiate, with a company like Spotify, vs. what we get when we are under the burden of an expansively interpreted “safe harbor,” when you’re negotiating with somebody like YouTube, you can see that you’re not getting the value across the platforms that you should.

What’s the single biggest change in the DMCA that you’d like to see?

Notice and stay down, instead of notice and take down. There are 100 copies of a song. We can’t just say to YouTube “we didn’t license this Pharrell song, take it down.” They will not just take down all 100 copies. They’ll take down only the one file that we’ve identified. We have to find every one of them, and notice them, and then they’re taken down, and then immediately put right back up. You can never get all the songs off the system.

If we had a system where once a song was taken down, you had a filtering system that prevented it from going back up, we wouldn’t have to be sending hundreds of millions of notices on the same content over and over again.

Maybe then we’d begin to make a difference with all the pirated copies on all of the websites. But as long as there isn’t a stay down, we can’t deal with that. It’s just not possible.

The labels do have deals with YouTube. If they don’t like those deals, why not negotiate better ones or walk away? All of them expire this year.

The way the negotiation goes is something like this: “Look. This is all we can afford to pay you,” YouTube says. “We hope that you’ll find that reasonable. But that’s the best we can do. And if you don’t want to give us a license, okay. You know that your music is still going to be up on the service anyway. So send us notices, and we’ll take ’em down as fast we can, and we know they’ll keep coming back up. We’ll do what we can. It’s your decision as to whether you want to take our deal, or whether you just want to keep sending us takedown notices.”

That’s not a real negotiation. That’s like saying, “That’s a real nice song you got there. Be a shame if anything happened to it.”

So you’re saying the labels aren’t really free to walk away from YouTube — that their music stays up there whether they want it to or not.

We have experience with this. Because Warner Music, a few years ago, decided that they didn’t want their music on YouTube, because it was hurting all the rest of their deals. So they didn’t do a license with YouTube. A year later, they threw in the towel. What was that year like? They spent a fortune trying to take down their music. They could never even keep up with all the counter-notifications that were constantly being filed, so the music was going right back up anyway. And they were earning no revenues at all. So finally they threw in the towel, and accepted the licenses.

That’s what it’s like to negotiate, when somebody can claim the benefit of an expansive safe harbor. They’re taking the benefit of a safe harbor that was intended for people who were passive, neutral intermediaries. People like Verizon, where the content is just passing through their system. They’re not making money off of distributing content. YouTube does.

Katy Perry, among other people, is lobbying on behalf of the music business. It seems like getting rich musicians to press your case won’t help you change the laws. Do you think there’s a practical chance that will happen?

Two different questions. First: Katy Perry. The petition she filed makes clear that she’s worried about the next generation of songwriters and artists that are coming up. She isn’t complaining that she isn’t making enough money.

She made that money in the era that you’re complaining about. She made that money as a YouTube star.

Yeah. Well, the reality is that the industry is more stratified than ever. There are some people who have done really well. But it’s harder and harder for more musicians to make a living. Because the revenue that they’re getting from streaming isn’t keeping pace with the revenue that they used to be able to earn. We’re trying to get to a point where the streaming ecosystem works for everybody.

In terms of whether Congress will do something about it? We don’t know. It’s hard to get anything through Congress. But Congress has been taking a look at the copyright law for 3 years now. We want them to understand that one of the most important things affecting the value and ability of copyright to survive, is to take a fresh look at the DMCA

It’s complicated, right? The labels used to be investors in YouTube, right before it sold to Google. Two of the labels are partners with YouTube in Vevo. It doesn’t look like they’re in real opposition. It looks like they’re partners who don’t like terms of a deal they did.

I think the record companies would like to be partners with YouTube. But it’s a little hard to call it a partnership when it’s so one-sided in terms of the negotiating leverage.

Some of the loudest voices against YouTube used to be the video companies – movie studios, TV companies. Viacom was the one who sued them. They’re not vocal in the way that the music labels are now. Why aren’t they joining you?

Maybe it’s because YouTube is not the place where you go for your pirated movies. But it certainly is the place you go for your pirated… I shouldn’t call it pirated. It’s “user-uploaded.” They’re putting up an entire album, and a picture of the artist, and therefore YouTube has become the largest on-demand music service in the world.

———————-

I offered YouTube executives the chance to rebut Sherman’s argument via a separate Q&A, but they declined. The company did point me to the response they offered when the RIAA criticized them last month:

“To date, Google has paid out over $3 billion to the music industry – and that number is growing year on year. This revenue is generated despite the fact that YouTube goes way beyond music to include popular categories such as news, gaming, how-to, sports and entertainment. And with the recent launch of the YouTube Music app, we recently launched a new, dedicated music experience with the goal to deliver even more revenue to both artists and the music industry more broadly. Past comparisons to other audio-only, subscription music services are apples to oranges.”

YouTube and Google have also responded in more depth, via the comments they’ve filed to US Copyright Office as part of the study Sherman mentioned. Here’s a passage that deals with many of the RIAA’s complaints:

Some in the recording industry have suggested that the safe harbors somehow diminish the value of sound recordings, pointing to YouTube and blaming the DMCA for creating a so-called “value grab.” This claim is not supported by the facts. As an initial matter, it is important to understand that YouTube has had license agreements in place with both major and independent record labels for many years; it is simply incorrect to say that YouTube relies on the DMCA instead of licensing works. Those pressing the “value grab” argument also assert that the royalty rates in these licenses are too low, allegedly because the DMCA’s notice-and-takedown process makes it too difficult for record labels to withdraw their works from YouTube in the face of users re-uploading those works. This claim, however, ignores Content ID, which has been in existence since 2008 and which record labels (and many other copyright owners) use every day to monetize their works on YouTube. Thanks to Content ID, record labels do not have to rely solely on the DMCA’s notice-and-takedown process on YouTube—they can remove any or all user-uploads of their works from the platform on an automated and ongoing basis. Indeed, since January 2014, over 98% of all YouTube copyright removal claims have come through Content ID. Although business partners can be expected to disagree from time to time about the price of a license, any claim that the DMCA safe harbors are responsible for a “value gap” for music on YouTube is simply false.

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