YouTube v Radio

Since Phil Riley, Chairman of Orion Media, suggested it, I thought I’d have a look at what’s happening here.

YouTube has just published a strong blogpost penned by Christophe Muller, Head of YouTube International Music Partnerships, essentially defending their payment structure to musicians, saying that they do compensate rights holders fairly, and that perhaps radio should take a closer look at itself.

I think it’s a slightly scatter-gun argument, so it’s perhaps worth examining the various elements of what Muller is talking about.

But first a bit of background. What you need to know is that Universal, Sony and Warners, three of the major record labels, all have upcoming renegotiations of their agreements with YouTube.

YouTube is also phenomenally successful. It offers a simple, free, proposition for consumers to listen to music. Some reports suggest that more music is listened to on YouTube than Spotify and Apple Music combined. Users can build playlists, and plenty use the video streaming site as a de facto audio streaming site, not actually watching the videos all the time.

According to the FT:

Last October, Jimmy Iovine, the head of Apple Music — and the former chief executive of Interscope Records — told the Vanity Fair New Establishment conference that YouTube was responsible for 40 per cent of all music consumption but generated only 4 per cent of the industry’s revenues.

Set against YouTube are the paid-for streaming services like Spotify and Apple Music. These pay more to the labels, but there’s a limit on who’s willing to pay for such services.

Spotify recently said it had 30m paid for users, while Apple Music has reached 13m. But those numbers are drops in the ocean compared to the wider music-consuming marketplace. Those are global numbers, yet more people listen to music radio in the UK in a given week than those two combined.

Of course, there are many more paid-for services, but it puts these numbers into perspective.

And with YouTube having over a billion users, it’s estimated that as much as 35% of its traffic is music.

With physical sales and downloads declining in revenue, the only real growth for pre-recorded music (I’m excluding “live”) is coming from those subscription services. So the labels are obviously looking at YouTube and thinking that it’s not paying its way.

That explains why YouTube is coming out on the defensive. But what about the radio charges?

Like radio, YouTube generates the vast majority of our revenue from advertising. Unlike radio, however, we pay the majority of the ad revenue that music earns to the industry. Radio, which accounts for 25 percent of all music consumption in the US alone and generates $35 billion of ad revenue a year, pays nothing to labels and artists in countries like the U.S. In countries like the UK and France where radio does pay royalties, we pay a rate at least twice as high.

I’m not going to defend the US rights situation. I do think it’s iniquitous. But it’s worth noting that US broadcast radio does pay the songwriters. It’s the performers who don’t get paid. And it’s also worth noting that performers are compensated on satellite radio and on streaming services such as Pandora.

Beyond that, it’s worth noting that the share of revenues that artists, songwriters and labels get, is something else entirely. When you hear about an artist receiving a cheque for a relative pittance from Spotify plays, it’s worth examining what Spotify actually paid out, and how much – or little – of that found its way to the artist.

But with radio, the truth is that it does provide valuable promotion. Simply put, if radio was just leeching off the music industry, then why would labels work hard to employ pluggers, send their biggest stars to do interviews and to a greater than ever extent, agree to often appear at stations’ events – e.g. Radio 1’s Big Weekend or Capital’s Summertime Ball.

As for the charge that YouTube pays music rights at a higher rate than radio? Guilty as charged. But there is a mighty difference between radio and YouTube. Radio selects what it plays, and listeners get little choice in the matter – tuning in to hear the tracks in the order the station has determined.

Radio certainly is a promotional vehicle in that you don’t get precisely what you want when you want it. On the other hand, you’re introduced to music and discover music as a result of radio.

If I want to hear some Bruce Springsteen right now, I could turn on Radio 2 or Absolute Radio, and perhaps, after several hours of listening, it’s just possible that I’ll hear a single track.

YouTube on the other hand is an on-demand service. It’s like Spotify in that regard. You choose what you want to listen to. If I want to hear Bruce Springsteen, I can cue up most of his biggest hits before you’ve finished reading the end of this sentence.

YouTube, as with Spotify, is used as a direct replacement for buying music. Radio exists alongside as it has always done. There are more stations available, but actually less time being spent per person listening to the radio. Radio shouldn’t be considered the “villain” of this piece from the music industry’s perspective.

Let’s get back to that YouTube piece:

Instead of talking about a “value gap,” we should be focusing on a “value shift;” if the ad revenue currently spent on radio instead flowed to online platforms, it would double the current size of the music business.

Well good luck with that. A couple of days ago, the Advertising Association in the UK announced the value of advertising in the UK. Advertising in the UK has now reached £20bn of which £8.6bn is spent on the internet (43%). Compare this with £592m or 3% of advertising spend on radio.

I’m not sure quite how much money YouTube would to see further “shift” from radio to the internet.

Yes, I realise that they were thinking of the US market where radio gets closer to 10% of the ad spend, while TV is still bigger than digital (at least, it was predicted to be at the start of 2015). But there as everywhere else, digital will take a larger bite of the advertising pie, at the expense of “traditional” media including radio.

I think Muller is driving at the idea that £1 spent on radio advertising delivers less to music rights holders, than £1 spent on YouTube. Except that advertising goes from medium to medium. That shift is already happening – internet spend has gone from 0% to 40% in less than 20 years. There should be plenty of money floating around already!

The lines are blurred now; where once there was paid-for music you owned, and free music you listened to on the radio, there are now paid-for and free music streaming services. Consumers stopped buying CDs or mp3s and started paying for subscription services or using ad-funded free services. These services launched “radio” stations that might allow the skipping of songs you don’t like. It’s all very different.

Yet radio is the key discovery mechanism for music, and provides validation. Most people do not want to spend hours trawling through new music blogs looking for something new. Radio still does that job.

Incidentally, Radio 4 has just broadcast an interesting two-part series The Business of Music. The two episodes have been edited together to make a single episode in Radio 4’s Seriously podcast, and it’s well worth having a listen.