Analysis

YouTube and Universal Music sign new multi-year licensing deal


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Despite the continuing rows over the ‘value gap’ and safe harbour, YouTube has struck its second new licensing deal of 2017 with a major label: Universal Music Group.

The new global, multi-year agreement follows a similar deal with Warner Music Group in May, although both parties are keeping the details private beyond official statements from respective CEOs Susan Wojcicki and Sir Lucian Grainge.

“This important step forward provides our recording artists and songwriters improved content flexibility and growing compensation from YouTube’s ad-supported and paid-subscription tiers, while also furthering YouTube’s commitment to manage music rights on its platform,” said Grainge.

“I look forward to collaborating with Susan and her team at YouTube on the important work ahead to advance artists’ interests and sustain the music industry’s recent growth.”

Wojcicki added this: “We’re thrilled to strengthen our partnership with Universal Music Group. This agreement means we can drive more value to the industry, break and support more artists and deliver an incredible music experience to fans around the world.”

These deals are leading up to YouTube’s anticipated launch of a new music-streaming service, likely combining the music aspects of its YouTube Red subscription with its parent company’s Google Play Music, in the early part of 2018. Earlier this month, Bloomberg suggested that the service could debut as soon as March 2018, if the necessary licensing-deal renewals are done.

“The new service, internally referred to as Remix, would include Spotify-like on-demand streaming and would incorporate elements from YouTube, such as video clips,” claimed its report.

YouTube’s head of music (and music industry veteran) Lyor Cohen has talked publicly in 2017 about YouTube’s ambitions to unify Google’s music-streaming offerings under one consumer-facing service.

“The important thing is combining YouTube Red and Google Play Music, and having one offering,” he said in July at a conference in New York, a few months after the two services’ teams were combined.

In August, Cohen also alluded to YouTube’s plans – and the need for reworked licensing deals with the labels to power them – in his Five Observations From My Time at YouTube blog post.

“The team is serious about subscriptions. And now with YouTube Music and Google Play Music merging, I’m confident they will build an even better subscription service. And with more deals like the one YouTube recently signed with Warner, they’re going to be able to take it global.”

In September, he returned to the theme. “Building a subscription business is really hard. Building two is multiplying it. So the fact that that effort is being combined should be a real green light for everybody to recognise how serious this company is,” said Cohen then.

Does the fact that Universal Music and Warner Music have signed new licensing deals with YouTube mean the pressure is off over the ‘value gap’ debate? In a word, no. Labels are still keen for legislators in the US and European Union (and elsewhere, as copyright reform comes up) to remove the safe harbours that they argue gives YouTube an unfair advantage at the negotiating table – if not for this round of licensing renewals, certainly for the next one.

WMG made a point of saying in May that its licensing deal was shorter than usual, to allow for “more options in the future” – i.e. when (it hopes) the legislation has been amended.

Universal Music’s digital boss Michael Nash talked about the debate at the launch of the IFPI’s annual music report in April. “The scale of this inequality casts a shadow over the entire landscape that cannot be ignored,” he said then. “The longer this is permitted to continue, the greater the threat to the music ecosystem… The value gap must not be permitted to derail our mission. We have worked too hard to get here.”

For the major labels, there is no contradiction between lobbying for safe harbours to be removed from services like YouTube, while also striking pragmatic licensing deals with the service for the music that’s on there – and they do have a genuine desire to see the company throw its weight behind music subscriptions and have the kind of impact that hasn’t happened so far with YouTube Red.

There are plenty of questions: will Sony Music and indie licensing agency Merlin sign on the dotted line soon too? What kind of advances has YouTube been offering labels as an incentive to strike these deals? And how will Remix (or whatever its ultimate name is) innovate beyond the $9.99-a-month template we’ve seen from Spotify, Apple Music and other services? And which way will the US and EU legislators swing on safe harbour?

2018 is going to be a mightily interesting year for YouTube’s ever-complex relationship with the music industry.

Stuart Dredge

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