September 4, 2017:YouTube’s Robert Kyncl: ‘The music industry has won the war’

No, not the war of words over whether ‘safe harbour’ laws should be reformed to give YouTube less of an advantage at the music-rights licensing table. That skirmish is going to run and run.

The war that YouTube’s chief business officer Robert Kyncl is talking about in his new book is the long-term decline in recorded-music revenues that saw the industry’s value drop by 40% over a period of 15 years.

The book – Streampunks: YouTube and the Rebels Remaking Media – isn’t just about the music industry, but naturally Music Ally turned straight to the chapter on music after receiving our review copy.

Kyncl and co-author Maany Peyvan carefully avoid the specifics of the safe harbour question – that being whether YouTube still qualifies as a ‘passive, neutral intermediary’ that isn’t liable for copyright-infringing content uploaded by its users, as long as it takes down that content promptly when notified – but focus instead on a more positive pitch for the role that YouTube plays for the music business.

And, indeed, a notably sunny vision for the industry itself. “Now is actually a time for optimism in the music industry. I predict that its brightest years are actually ahead of it, not behind it,” writes Kyncl.

“At a time when there’s never been more competition for people’s attention, the industry has a product people love… Though everyone competes for our eyeballs, the music industry has a hold on our eardrums.”

There is plenty to parse in the book’s ‘Streampunk Rock!’ chapter, which uses as its central hook music manager Scooter Braun’s guest slot in Kyncl’s 2016 CES keynote speech, and Braun’s experiences on YouTube with Justin Bieber and Psy.

The topic we’d pick out as most important, though, is Kyncl’s firm defence of ad-supported streaming’s role in the current and future growth of the music industry, despite rightsholders’ regular attacks on the ‘value gap’ between the number of ad-supported streams, and the payouts they generate for the industry.

“It’s easy to dismiss digital advertising as a viable model for supporting artists while it’s still relatively new. But with time, advertising could mean as much to the recording industry as commercials mean to TV,” writes Kyncl.

“For instance, if the money advertisers currently pay to radio stations shifted to support digital music consumption instead, it would double the current size of the record industry.”

Comparing YouTube to broadcast radio rather than to audio-streaming services like Spotify and Apple Music is one of Kyncl’s arguments.

“Just like MTV, radio, which accounts for a quarter of all music consumption, pays nothing to labels and artists in the United States, even though it generates $35 billion of ad revenue a year. Outside the United States, radio does pay royalties to the recording industry, but at a rate less than half of what YouTube currently pays,” he writes.

Shifting advertising spend from radio to streaming services isn’t just an ambition for YouTube. From Pandora to Spotify, every streaming service with a free, ad-supported tier is going after those ad dollars – and highlighting the royalty disparities to rightsholders.

But Kync’s argument in favour of ad-supported streaming widens out beyond radio to the question – also much-discussed within the music industry – of how many people will ultimately pay for a music subscription, and how to approach the people who won’t.

Goldman Sachs published a report last month that included the prediction that by 2030 there will be 847 million music subscribers globally. Kyncl thinks that the real figure will be barely a third of that.

Although a healthy subscription business may eventually sign up 200 million to 300 million people around the world, that still leaves another 2.7 billion people who are currently online but can’t or won’t pay $120 a year. What about all those people?” he writes.

Kyncl goes on to suggest that many of these people are “very young or lack disposable income” – especially if they live in emerging markets – and have historically been radio listeners rather than CD or download buyers.

“That’s where digital advertising comes in. As these casual consumers enjoy more of their music through ad-supported services online (or on their phones), the industry will earn a greater share of the ad revenue that targets them,” argues Kyncl.

“That is the road map to the music industry’s most profitable years ever: subscriptions that lead to a significant amount of stable revenue from its highest-value customers and advertising that monetises everybody else.”

Kyncl makes a direct comparison to the television industry, which he notes doubled in size to $200bn between 1998 and 2014 through a mixture of ad-supported and premium models. “The same exact period during which the music industry’s revenues were cut in half,” as he points out.

Whatever your views on the safe-harbour debate, Kyncl does have a point about there being lots more value to unlock in digital advertising. Although rightsholders also might argue that the ongoing ‘value gap’ rows are hampering collaboration between YouTube and the music industry to unlock it.

Other points from the music chapter in Kyncl’s book include his reiteration of YouTube’s status as both marketing and monetisation channel for music – “unlike on MTV, music videos on YouTube offer promotion and money” – while also undercutting the music industry’s view that music is THE most important content on YouTube.

“It’s unquestionable that songs are core to our platform. According to Nielsen, more than half of all teenagers use YouTube to find and listen to new artists. And most of the videos with the highest view counts ever are music videos,” writes Kyncl, as a ‘but’ hoves into view.

But high view counts can be misleading; YouTube is first and foremost a place for entertainment. Although many people enjoy music on YouTube, they actually consume far more non-music content. The average YouTube user spends just an hour watching music videos on YouTube a month. Compare that with the four hours of music the average American listens to a day.”

There’s also an interlude where Kyncl points the finger at Apple – one of the companies seen by rightsholders as a better actor than YouTube in the current ecosystem – for its role in that 15-year revenue decline for the industry.

Although iTunes may have been crucial in getting people to value music again, it couldn’t stop CD sales from cratering. And in fact, the sale of digital singles caused a massive drop in revenue because it allowed people to ‘unbundle’ CDs. Most people stopped buying full albums – which usually cost between $10 and $20 – and instead just bought the singles they knew they liked for a few bucks,” writes Kyncl.

“So it’s no wonder the industry is approaching streaming with trepidation, harmed as it was for nearly two decades by the transition from physical sales to digital distribution.”

A penny for Eddy Cue’s thoughts on that assessment of the music industry’s modern history. But elsewhere, Kyncl takes some softer jabs at music labels’ initial reluctance to see YouTube as an important new talent pool, rather than simply a platform to monetise their music videos on.

streampunks

This is where Scooter Braun comes in, with Kyncl relating the tale of how Braun discovered Justin Bieber on YouTube, built his audience there, and then after 60m+ views tried to get him signed to labels.

Everyone turned him down. They told him that YouTube artists don’t become stars and views don’t lead to sales. When he’d protest that Justin had a bigger audience online than other acts on their label, they’d disagree,” explains Kyncl.

“He’s not more popular, they told him; he hasn’t released any records… When he tried to pitch Justin to the legendary music executive Clive Davis, Davis’s team told Scooter that Clive didn’t use the internet and wouldn’t check out a YouTube channel.”

Those days are gone, though. Indeed, the speed at which Shawn Mendes was snapped up by Island Records in 2014 after making his name with seven-second videos on Vine is just one example of labels believing (and subsequently, with Mendes, proving) that views do lead to sales.

(Although the fact that we’re talking less about ‘sales’ and more about ‘streams’ in 2017, with labels questioning why YouTube streams would drive, say, Spotify or Apple Music streams, highlights another aspect of the disputes here.)

“Prior to Justin, that model didn’t exist. YouTube was seen by the music industry as a place solely for two things: official music videos from major artists and clips from amateurs. It wasn’t considered a place to discover a superstar until Scooter did it,” writes Kyncl.

“Scooter showed the record industry that the model of discovering pop superstars could be flipped on its head. Not only could new musical talent be discovered on the Internet – as some labels had done by signing artists directly from MySpace – but the wisdom of the crowd could bring camera-ready artists directly to them.”

Because YouTube was inherently a visual medium, it meant that successful artists would have both musical and visual appeal. And best of all, it was global: stars could come from anywhere, and their music had the potential to resonate everywhere.”

It’s interesting to see Kyncl using a very-similar soundbite to several Warner Music Group execs in recent times, although in their case, the ‘music can come from anywhere and be popular everywhere’ idea is more about streaming’s ability to break artists from territories like Latin America globally.

Despite YouTube’s role in that – 2017’s biggest hit so far ‘Despacito’ being a prime example – the music industry remains on a (metaphorical) war footing when it comes to safe harbour. Which brings us back to Kyncl’s parting shot in his book’s music chapter, stressing what he hopes is a positive future.

“The music industry has had to survive some devastating battles – against piracy, against the unbundling of albums, against the belief that no one would ever pay for music again. But the truth is, it has won the war.”

The music chapter comes fairly late on in Kyncl’s book, which is dedicated to “the kid out there filming a video on a smartphone who will one day become the biggest entertainer in the world”.

The emphasis is on the “streampunks” – the gamers, vloggers, comedians and other YouTubers who’ve been building their audiences on the platform, as well as on other social networks – and on what they’re changing for the wider media industry.

For example, there’s his chapter suggesting that “shelf space is the key to understanding how the media industry works today”, comparing the established music, television and publishing industries to the historic dynamics of the retail industry.

“Any situation where there was limited shelf space (literally in the case of books, CDs and DVDs; figuratively, in the case of cable bandwidth or broadcast spectrum) meant that both the producers and the distributors of content had to negotiate for placement, leading to greater consolidation within the industry and greater power in the hands of fewer gatekeepers,” he writes.

You can see the next stage in this argument coming: the “infinite shelf space” of the internet, and the ability for people to upload video to YouTube and reach an audience.

You no longer have to play the game, you can embrace the streampunk ethos, self-publish, and be discovered. And no gatekeeper can stand in your way,” he writes.

The counter-argument here, though, is that platforms like YouTube (and Facebook and Google) have simply replaced human gatekeepers with algorithmic gatekeepers.

Success on these services IS still about playing a game: but now that game’s rules are dictated by the recommendation algorithm. Which, as YouTube has made clear recently, currently drives 70% of watch-time on the platform.

 

Stuart Dredge
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