The Price Is Right: YouTube Versus Labels

The Guardian has an interesting story on how record labels are learning how to make money from YouTube.

Five years ago, this is what I had written in ‘Youtube: The future of music distribution?

Now, if Youtube were to give the record companies a fixed amount of money (they had set apart $500 million for copyright litigation-related costs in escrow), for legally playing out music/music videos and if that fixed amount of money is higher by even a cent, compared to what the industry might make legally a few years down the line, who can honestly complain about it?

Since I wrote that many moons ago, I have been quite convinced that the fight with YouTube for the record labels was less about copyright/licenses and more about the right price. Internet has not changed much the manner in which music is created; what it has ripped to bits is how discovery and distribution works for music. The stark truth for labels is that in trying to keep the old model going for as long as possible they have lost on being on top of the game as far as distributing music goes.

Another way to ask the question is: where is the Hulu for music for record labels?

With iTunes and YouTube they have given up a key point of leverage and that horse has long bolted. The situation is largely beyond repair with the limited imagination the industry has. So the only option left is to cut overheads, haggle over the price and ride the wave.

If the price is right they would not care less whether the clip or stream with the largest number of eyeballs is the official one or not, as long as they are getting paid for any stream (official or user-generated) or clip with their artist in it. In fact, it is more of a headache for YouTube as official channels can get them better revenue on the ads, compared to the clip being played on an unofficial channel.

To a great extent, this change is already visible on YouTube through two developments: YouTube’s fingerprinting service has of late improved dramatically. It now develops artist pages and playlists from official and unofficial channels. Secondly, they are aggressively pruning non-official versions of various clips, leaving only what the copyright holder wants to show available to the viewers.

For the users this has one major downside. In a manner of speaking, YouTube was the true successor to Napster in the width of content it used to host. You could find some really obscure clips on it earlier. As the cleanup continues, that feature will slowly fade away. On the other hand, products like Grooveshark, Spotify, Gaana and Saavan are making it increasingly easier to find and consume legal content, thus reducing one of the major cases for piracy – which is convenience.

For the labels, eventually, it is not that bad a deal. It is incredibly complicated to run a digital operation that manages both geo-restriction and monetization effectively. Given enough time, a new product is eventually bound to emerge that will do that better than a YouTube or an iTunes store. Till that happens, they can cut costs, make more money and let others do all the hard work.