December 6, 2016:YouTube pays out $1bn in ad revenue to music industry in past year

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Amid the politicking around the “value gap”, an old revenue figure of $3bn paid to music rightsholders since 2007 was commonly thrown around to prove that YouTube was either great for the music industry or terrible for the music industry. A bit like the Schrödinger’s cat of monetisation.

Now we have a new figure to prove just how good or awful YouTube is, depending on what side of the lobbying fence you stand. YouTube says it has paid out $1bn to the music industry (meaning labels and publishers) in the past 12 months – and this all came from ads (so not including YouTube Red subscriptions).

Robert Kyncl, YouTube’s chief business officer, has been blogging about the payout and positioning YouTube as a player in the revival of the music industry’s fortunes recently rather than a cause of its erosion.

“Last year was a bright one for music – after several tough years of declining revenues, the industry started growing again, spurred in large part by the growth of music streaming subscriptions,” he said, accepting that subscription is the key driver here, but arguing that ad income should not be discounted from the overall equation.

“Even as music subscriptions have been growing faster than any other subscription type, advertising is another powerful driver of revenue. In fact, in the last 12 months, YouTube has paid out over $1 billion to the music industry from advertising alone, demonstrating that multiple experiences and models are succeeding alongside each other.”

YouTube has not broken down these payments by sound recording and publishing, so it is unclear (for now) what exactly this will mean for IFPI’s full-year figures for 2016. Of course, on issuing its 2015 figures in April this year, the IFPI talked at length about the value gap and how unsustainable certain models in the industry were. The organisation didn’t explicitly name YouTube, but it was more than apparent who it was alluding to.

It claimed at the time that 68m streaming subscribers contributed $2bn in revenues last year – an average revenue per user (ARPU) of $29.41. But that 900m users of free, ad-supported services generated just $634m – an ARPU of $0.70.

“The single biggest source of online music is generating only 4% of our revenue,” said Edgar Berger, chairman and CEO, international at Sony Music, at the time. “This is a gigantic mismatch between volume and rewards.”

While unlikely to cause an early round of festive cheer at the offices of the IFPI, RIAA, BPI and others who will continue their lobbying around the value gap into 2017, the subtext to Kyncl’s blog was that this is the new reality that rightsholders are having to face up to. Plus, it is only going to become even more of their reality.

“As more advertising dollars shift from TV, radio and print to online services, the music industry will generate even more revenue from ads,” he wrote. “In the future, the music business has an opportunity to look a lot like television, where subscriptions and advertising contribute roughly equal amounts of revenue, bolstered by digital and physical sales.”

He did, however, hint that it could be a bumpy ride, but that the music industry needs to work with, rather than against, YouTube to make the best out of it.

“To achieve this, there is a lot of work that must be done by YouTube and the industry as a whole,” he said, “but we are excited to see the momentum.”

Last month, GEMA in Germany ended its seven-year standoff with YouTube on behalf of publishers which saw most music blocked for viewers in the country. This was seen as a landmark deal as GEMA had stood its ground for so long but eventually managed to agree terms with YouTube. (In the early days of YouTube, both PRS and Warner Music pulled content from the video platform but eventually reinstated it under new, albeit undisclosed, terms.)

This came after the European Commission’s new proposal to address copyright in the digital single market in September were cautiously welcomed by the music industry. The IFPI was keen to see this as “a first step” in a much larger process and Google, YouTube’s parent company, accepted there were “things to like” in the report.

We can expect a music industry response to YouTube’s latest payout soon and will, of course, cover that when it comes. The issues of takedowns and safe harbour exemptions will almost surely feature heavily – two issues that were conspicuous by their absence in Kyncl’s triumphalist blogging.

And thus it will continue into next year, with both sides locked in a convoluted relationship of distrust and dependency.

Eamonn Forde
READ MORE: Analysis News
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One response
  • Tabitha says:

    The industry definitely needs to work alongside the digital age, the internet has the power to make or break the music industry as we are coming to understand it in the YouTube era. It’s disconcerting to think of the actual numbers behind the shifting concepts of ownership that the last decade has seen. Unfortunately a hole has been dug, and the music industry needs to work out how it will evolve to match the way the digital world works now.

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