In the past 12 months, YouTube has paid out $1.34 billion to the music industry in advertising alone, according to a blog post from the company’s Chief Business Officer, Robert Kyncl. The post highlights YouTube’s stance that the music industry needs two monetization models: advertising and subscription.
Although subscriptions will likely drive streaming music revenue growth over the next five years, the new stat attempts to justify YouTube’s ad rates, which music executives think is too low. Indeed, one executive from the Recording Industry Association of America (RIAA), Cary Sherman, cast doubt over YouTube’s royalty rates earlier this year, citing a disparity between the growth in streams and the growth in revenue from those streams.
Here are some other implications of the announcement:
- Music industry revenue growth has been stagnant for the past five years. From 2010-2015, music industry revenue hovered around $7 billion, with virtually no growth over the five-year period. But this year, revenue is expected to increase 7% year-over-year (YoY) to $7.5 billion, driven by streaming services.
- Music could represent close to 20% of YouTube revenue. Assuming YouTube pays artists the typical 55% of the ad dollars generated by their videos, this would suggest the company generated over $1.8 billion in music-related advertising for most of this year — with $1 billion going to the industry, and the remaining $810 million staying with YouTube. According to estimates published by BofA Merrill Lynch, YouTube will generate $10.4 billion in gross revenue in 2016, suggesting around 18% of total YouTube revenue comes from ad-supported music content.
Music can also be a big lure to drive subscriptions. YouTube’s dedicated music experience, YouTube Music, is available through a Red subscription. Although it’s nominally a video platform, YouTube also has the biggest music library by far, with an estimated 1 billion songs. The company said it’s increasing marketing of YouTube Music, and only needs to convert 3% of its 1 billion monthly user base to YouTube Red to match Spotify’s paid subscribers.
The International Federation of the Phonographic Industry, or IFPI (a trade group representing the global record industry), took issue with YouTube’s announcement. In a statement, the IFPI called the $1 billion figure an “unexplained” claim. The organization also reiterated the record industry’s argument earlier this year that YouTube pays an unfair rate for music due to a “value gap” under existing law.
“Google has today issued more unexplained numbers on what it claims YouTube pays the music industry. The announcement gives little reason to celebrate, however. With 800 million music users worldwide, YouTube is generating revenues of just over US$1 per user for the entire year. This pales in comparison to the revenue generated by other services, ranging from Apple to Deezer to Spotify. For example, in 2015 Spotify alone paid record labels some US$2 billion, equivalent to an estimated US$18 per user.
YouTube, the world’s largest on-demand music service, is not paying artists and producers anything like a fair rate for music. This highlights more than ever the need for legislative action to address the “value gap” that is denying music rights holders a fair return for their work.” Read the IFPI’s full statement.