Analysis

YouTube and SoundCloud testify at UK’s streaming economics inquiry


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A lot has been said about the strengths and failings of music streaming services during the UK parliamentary inquiry into the economics of this market. Yesterday, three DSPs got the chance to have their say. Well, two of them, as things turned out.

In one of the most curious episodes in the inquiry so far, Twitch’s general counsel Steve Bené was seemingly present at the session – he could be heard thanking the chair for welcoming the three speakers at the start – but he wasn’t asked a single question during the session, and thus remained a silent participant.

Given the music industry’s recent ructions with Twitch, that probably counts as a win for Amazon’s livestreaming subsidiary. And while it’s possible that some kind of technical issues kept Bené out of the session rather than the committee of MPs simply forgetting that he was there – or perhaps he couldn’t turn his cat filter off – it was bizarre.

It also meant those MPs had much more time to grill Katherine Oyama, director of government affairs and public policy at YouTube, and – to a less aggressive extent – Raoul Chatterjee, VP for content partnerships at SoundCloud.

(Where are Spotify, Apple Music, Amazon and co? You can expect some or all of them to be called for a future hearing in the inquiry. Their absence yesterday does not mean they have wiggled out of it.)

Pressed on safe harbours and the ‘value gap’ from the get-go, Oyama outlined YouTube’s familiar arguments in favour of the former and pushing back on the latter notion.

“Safe harbours have really powered the user generated content movement that we’re seeing,” she said, getting in early with YouTube’s latest official figure: $12bn of payouts to music industry rightsholders by January this year.

“Many of them are receiving more than half of their [YouTube] revenue every year from the user-generated side. So not only has that system created a really vibrant place where artists and fans are able to be more interactive… but there has been a big shift where this sector is really driving real revenue, and powering this five to six-year positive growth we’re seeing now in the global recorded music industry.”

Having spent the rest of the day hearing from people claiming that YouTube has actually ‘suppressed’ the potential value of streaming – arguments that its safe harbours give it a negotiating advantage over non-UGC rivals, while its scale bars those rivals from raising their prices – it was no surprise to see the DCMS committee spend much of the session pressing Oyama on these matters.

Oh, and also asking her whether YouTube is lobbying for safe harbours to be included in any post-Brexit trade deal, which was one of the sharper questions posed during the session, albeit one parried calmly by Oyama.

“I think we generally support the safe harbour foundation, both for the importance it has had for the digital economy and for the music sector,” she said, while stressing that she has “not been any part of the debate in the US-UK discussions… I think if we were asked, we would be happy to share what we just shared earlier: we do think it [safe harbour] is a strong foundation”.

The questioning switched tack to the recent report that SoundCloud is exploring ways for fans to pay artists more directly, including possibly adopting a user-centric payouts system – one of the recurring topics in this inquiry thus far. However, he was distinctly cautious in his response.

“It’s definitely an interesting area, and as an artist-first platform we’re always looking for ways to make payouts to artists fairer,” he said. “But the whole investigation into user-centric is a very detailed and complex investigation that needs to be taken. It’s one potential path we’re exploring… and it would require industry-wide conversations and support to be impactful.”

(And requiring industry-wide support is exactly the reason why getting user-centric off the ground – even as Deezer wants to do it, as a single-country recordings-only trial – is such a remote prospect right now, for all its potential.)

katharine oyama

After this brief respite, it was back to Oyama with questions about the ‘value gap’ between music consumption on YouTube and its payouts to rightsholders. And, indeed, the perceived gap between YouTube’s per-stream royalties and those of its audio-only / non-UGC rivals.

Parry one: Oyama pointed to the YouTube Music Premium subscription service, with its 30 million subscribers, and said “all the analysis I’ve seen on payouts and breakdowns is that we are on a par with those other services”.

Parry two: UGC videos are not the same as regular music tracks. “There’s a lot of content on YouTube that has these more minor uses: a video of a skateboarder or a tourist video… not all streams are equivalent to this one model that we might have,” she said.

Parry three: YouTube’s Content ID system gives rightsholders the option to block or monetise UGC videos featuring their music – “and in 95% of the cases, and it’s completely, of course, their decision, rather than block they’re choosing to have it up and they’re choosing to get the monetisation.”

To anyone who’s been following the ‘value gap’ debate for years there was little new here: although Oyama did say that the Content ID system has sent about $5.5bn out to music rightsholders so far. That’s just under 46% of the total payouts, and might be a new stat.

The two tech executives ran through their copyright protection technologies – broadly similar in the fact that they identify rightsholders’ music when it’s uploaded by users, although Chatterjee stressed that SoundCloud operates a ‘notice and stay down’ policy to ensure rightsholders don’t have to send repeated takedown notices for the same material.

They were also asked how they thought the streaming ecosystem needs to be improved for artists and songwriters. Oyama pointed the MPs’ attention in the direction of dodgy or missing metadata.

“The lack of a comprehensive database about ownership adds a lot of complexity,” she said. “For a 90-second song, we are often having to divide that across maybe 14 different entities and rightsholders.” And the data telling YouTube who those entities are may be incomplete.

She also offered a careful nod to the debate around how rightsholders pay through the royalties they receive from YouTube and other DSPs.

“I have heard throughout this inquiry a real call for more transparency as to what happens to the dollar as it works through the system and a number of different entities,” she said, before segueing into YouTube’s desire to help artists make money in more ways from its platform: with livestreams, merchandise sales and channel memberships.

(Including another new number, sort of. Oyama talked about K-Pop stars Blackpink’s recent ticketed livestream concert on YouTube. “They sold out about 20 times the capacity of the O2 Arena for one concert,” she said. The O2’s capacity is 20,000, so you can do the maths.)

The conversation turned to whether streams should be accounted for like sales. “Streaming should be defined as streaming: I don’t think we should be looking to apply old business models to what is now the dominant format,” said Chatterjee. “I think we should be considering more equitable ways to distribute the revenue to the artists.”

He was mildly grilled on whether SoundCloud will ever be profitable – “I’d like to think we’ll be breaking even pretty soon” – before the MPs’ attention switched back to Oyama, and the question of whether YouTube is the reason audio streaming subscriptions are still £9.99 a month more than a decade after Spotify’s launch.

(We’re diplomatically leaving out the interlude where one of the DCMS committee chose to use up some of the limited time available to ask Oyama whether her former employer, Joe Biden, had good music taste. It was a proper throw-your-shoe-at-the-screen moment.)

“I would give them credit that they have smart people looking at the overall economics,” said Oyama. “There might be an assumption that if you increase the subscription price, the output would only be a growth. But not every user can pay a subscription. Not every user today is ready to pay a subscription, or willing.”

raoul chatterjee

Earlier in the day, BPI boss Geoff Taylor had questioned YouTube’s claim that it could potentially be the music industry’s biggest source of royalties by 2025. “We’re not on a path to achieve that, let’s put it this way,” he had said. “The data so far doesn’t suggest it to me.”

Oyama was unimpressed. “I honestly was surprised and a bit disappointed by the testimony that I heard. Frankly it does not reflect at all the individual relationships that we have with the individual members of the BPI,” she said.

“The numbers that I’ve seen: in 2019 we sent three billion to the music industry. We don’t yet have our 2020 numbers done, but it’s been growing every year. We’ve no reason to think it has not grown quite significantly last year.”

“Spotify, the last press release I saw for them, for Q4 of last year, is that they’re sending one billion per quarter to all rightsholders. So music I’m sure is a significant portion, but also podcasts and others. If you just look at that data, we are close, and we absolutely wanna get there.”

The stickiest moment for Oyama came near the end of the session, with a sustained burst of questions about how YouTube’s payouts translate into per-stream figures, which she declined to give.

In one sense, that was understandable: there is no single per-stream figure, as it depends on whether ads are running around a video; what kind of ads if so; current advertising rates in the country of the viewer and so on.

But at least offering some kind of range / ballpark figure might have ensured Oyama avoided the wrath of the committee’s chairman, Julian Knight MP, who was as cross with her as he had been with UMG UK boss David Joseph in an earlier session, over a question (and similar unwillingness to answer) about a Spotify deal.

“I’d have thought when you came before this committee you’d actually know how much you pay artists when you use your content on your platform, when it’s uploaded by users. It seems to me astounding that you don’t actually know,” said Knight.

“Or can we read into this that you do not want to say, because frankly it would expose the fact that you are making an absolute fortune from other people’s work?”

Oyama tried to answer. “Because we’re sharing revenue, if we make any money, the majority of the revenue is going out to the music industry. So respectfully I do think that it is partnership,” she said. Although when, soon after, she described per-stream payouts as “not a metric we rely on”, Knight let rip.

“Not a metric you rely on. That’s because it’s fairly inconvenient in that respect,” he said. “You’re an enormous company. You are literally almost a state unto yourself in many respects. You are absolutely enormous. And isn’t this another example of where you are just so big, and that where you are making such huge profits, that effectively you are dampening down an entire industry?”

“You are becoming effectively the sort of, almost like a… I don’t know how to put it: not gangmaster, but you are a huge entity, and you are taking huge sums of money out of the creative sectors. And yet they are effectively having to have a hand-to-mouth existence with yourselves. It’s true for journalism, and it’s true for music streaming, is it not?”

This felt like an important moment. In fact, many of the important moments in these kinds of inquiries are less about what the people giving evidence say, and more about what the questioners say – and what that shows about how they may be leaning with the reports and recommendations to come.

You don’t need a degree in political science to spot that “you are dampening down an entire industry” and “you are taking huge sums of money out of the creative sectors” and especially “gangmasters” (even with the ‘not’ prefix) are signs that an inquiry isn’t tilting your way.

Davies’ mini-speech suggests that the safe harbour and ‘value gap’ arguments from the music industry are winning favour. Equally, the tetchy nature of the hearing with the major label bosses suggested that their arguments were falling on deaf ears compared to the much more warmly received testimony of musicians and their representative bodies. Heaven knows what the committee think about Twitch.

That said, the result of this inquiry will be a report and recommendations, but turning that into legislation is another challenge entirely – and one affected by other external factors, for example that US-UK trade deal.

As things stand, it would not be surprising to see the committee recommend that ‘equitable remuneration’ be deployed at least for some streams – the more radio-like lean-back variety – as well as offering some recommendations on safe harbour that YouTube won’t like at all. Tax relief for music companies akin to that for TV, games and animation firms would be welcome too.

It’s more of a stretch to see it seeking to get the government involved in industry matters like musicians’ deals with rightsholders; the split between publishing and recording royalties; or banging everyone’s heads together until they commit to a user-centric trial.

Still, the inquiry continues, and we’ve yet to hear from the biggest audio streaming services – a session with Spotify, Apple Music and Amazon, perhaps with an add-on hearing for Deezer to detail the roadblocks to its user-centric trial – may yet add some more twists to this tale.

While we await news of that, check out our reporting on previous sessions from the inquiry:

The BPI and MPA
The Ivors Academy and Musicians’ Union
Aim, Beggars Group and Jazz Re:freshed
Universal Music, Sony Music and Warner Music
Tom Gray, Nadine Shah, Guy Garvey, Ed O’Brien and more

Stuart Dredge

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