YouTube plans to launch yet another “Spotify-killer” music streaming service at its annual Google I/O developer conference, according to reports. If history is any guide, we shouldn’t expect much in the way of innovation from the new paid service, or more importantly, anything too disruptive.
Back in December, Bloomberg reported that YouTube and parent company, Alphabet Inc., planned to launch the site in March. A more recent report from Droid Life says that a new service, perhaps called “YouTube Remix,” will debut around May 8, when Google’s developer conference gets under way. A YouTube spokesperson did not respond to a request for comment.
Regardless of when the new service arrives, we’ve seen this scenario play out before. Following tense licensing negotiations with the music industry, YouTube and parent company Google typically make a series of concessions. These usually include YouTube agreeing to launch a new service supposedly designed to persuade users to pay for songs.
Then, the service promptly falls behind the sector’s leaders, Spotify and Apple, languishing there until the next round of negotiations. Meanwhile, YouTube, the world’s most popular source of music, continues to rumble on, banking big ad dollars.
Google Play Music came along first, in 2011. Then YouTube Music Key emerged in 2014, which was turned into YouTube Red. That service is still around and offers an ad-free experience, for music as well as any other kind of YouTube video. Not one of these services has done much to challenge Spotify as the leader in the space, multiple music industry sources say.
One reason the music sector is so keen on transforming YouTube into a paid music service is that after a long dry spell Spotify, Apple and other subscription sites are leading a modest revival.
The International Federation of the Phonographic Industry said global music revenues rose by 8% in 2017. That’s the third year of positive growth after a staggering 15-year run of declines. Still, to expect YouTube to “put its shoulder” into creating a legitimately competitive paid music service is senseless, said Mark Mulligan, director of MIDiA Research and a longtime digital-music analyst.
“[The record labels] say ‘Look, you got to be in the subscription business,’ even though the subscription business is a complete contradiction to YouTube’s core business,” Mulligan said. “YouTube makes money by selling advertising and advertisers want to reach the best consumers. So, if you go and lock the best consumers behind a [paywall] you’re diminishing your core product and the core product is a high margin product.”
Mulligan said that whatever music service may come out of I/O, he thinks it’s “going to be a continuation of the same thing.”
The upcoming service certainly doesn’t sound very different, judging from Bloomberg’s story. Quoting unnamed sources, the news agency reported that it would offer “Spotify-like on-demand streaming and would incorporate elements from YouTube, such as video clips.”
At stake for the big music labels is more than the money that a YouTube paid service might generate. If YouTube doesn’t wall off some of its free music content, then users have no motivation to ever pay either YouTube or Spotify. The labels have long accused YouTube’s ad-supported, free-to-listen business of stymieing growth to paid music services, which are more lucrative for them.
For years, the labels have tried to force YouTube to pay more to license music. They argue that the site pays too little, relative to the size of its audience. Typically, the big music companies find themselves in a weak negotiating position because of copyright law.
YouTube is protected from liability for infringement committed by users. This means that if the labels don’t license the music to YouTube, the site’s users will just post videos themselves to the site. Then, the labels must go through an arduous, and costly process to remove the clips.
The big record companies have long claimed that YouTube exploits this during licensing talks. They say YouTube’s leaders adopt a take it or leave it approach. If the labels don’t accept YouTube’s offer, the site’s managers tell them they can remove their videos and then try policing the site for pirated songs, according to the labels. Executives from the record companies say they have learned that licensing YouTube — even at below-market rates –makes more sense.
But the record companies may have a little more leverage now. The European Union is trying to determine whether negotiations over licensing fees between artists and YouTube-esque sites are too one-sided in favor of the sites. Under a proposed plan that is due to be voted on later this year, YouTube could eventually be forced to fork over more money.
Any decision in Europe would only affect YouTube there, but it would create an unfavorable precedent. Judging from the far less combative language coming from music industry leaders, YouTube is coming around, at least a little.
“I feel that YouTube is starting to make more of an effort with the music industry,” said David Israelite, President and CEO of the National Music Publishers’ Association, who has been one of YouTube’s chief critics. “But they still have a long way to go with the actual royalties they pay. What’s most important is fair compensation.”
But Mulligan, the analyst, says that by forcing YouTube to be something akin to a retailer is a missed opportunity.
“Sooner or later, the music industry must realize YouTube plays a massively important role,” he said. “And its role is the future of radio, not the future of Tower Records.”
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