YouTube's identity crisis: Can it launch a Spotify-style service witout losing its soul?
From the moment cofounder Jawed Karim uploaded the first-ever YouTube video, a grainy 18-second clip shot at the San Diego Zoo, YouTube has been a space dedicated to the most homegrown of creators. It didn't matter whether you were Lady Gaga or a kid from Arkansas -- if the right people found your work and loved it, you could become an overnight sensation. Such was the power of YouTube's democratized take on web video.
But as YouTube gears up to debut its Spotify-style subscription music service, it's threatening to lose that indie-friendly identity. Over the past two months, music trade organizations have accused YouTube of threatening to remove from its platform the videos of indie artists who refuse to sign up for its streaming music service. According to multiple trade groups, the terms offered to these artists are under-market with royalty rates even lower than what competitors like Spotify and Rdio pay. In the wake of widespread public outcry, YouTube has postponed the plan to block the indies, and many in the industry have told me they expect the company to revise the proposed terms to the benefit of the smaller labels. Nevertheless, the whole ordeal has hardly been in the spirit of independent creation.
But while YouTube's subscription side has been bullying and lowballing indie artists, its traditional platform has been in talks to give homegrown creators more money. Late last week, the Wall Street Journal reported that YouTube was in talks to offer video-makers funding and marketing support in return for a share of the profits these creators earn on other services. By funding and cultivating that talent itself, YouTube, with the muscle of Google behind it, could potentially offer amateur creators more value than multi-channel networks (MCNs), which may not provide as sustainable a model as people once thought.
This Jekyll and Hyde attitude toward independent and homegrown creators underlies a major problem with YouTube entering the subscription music space. As Salon's Scott Timberg wrote over the weekend, the business models and interfaces of services like Spotify are designed to benefit the biggest artists representing the biggest markets, like pop, country, and hip-hop. Due to their popularity, these artists bring more to the table when negotiating terms with streaming music services -- if Spotify loses Beyonce, it's a much bigger blow than losing a small indie band with a dedicated but limited audience. That's one reason Spotify pays higher royalty rates to artists whose listens make up a larger proportion of the platform's total plays.
But while YouTube has long made runs at premium content from major brands and continues to do so, the existing models for subscription streaming run counter to the platform's identity as a democratized playground where anyone can become a star. It calls into question the very logic of YouTube launching a subscription service in the first place. Sure, YouTube's traditional product is for videos, not just music, but many of the content creators are the same. And an ideal partner for YouTube's classic platform, like a rising star whose talent YouTube can help cultivate, is not the same as an ideal partner for its subscription service, like Beyonce or Drake. This runs the risk of one side of the business alienating the other.
Furthermore, the royalty structure for songs used in videos is different than that of songs played on a streaming service. When a song is played in a video it requires what's known as a synchronization license. According to the Guardian, most major publishers grant blanket licenses to YouTube for the right to their catalogs, and in return YouTube provides a substantial upfront advance, which may turn out to be higher than the actual royalties the song will generate. The royalty structures for streaming services, while equally opaque, are more straightforward: Platforms pay labels on a per-play basis.* Unlike Spotify and Rdio, which only pay streaming royalties, YouTube is already sending massive amounts of cash to labels in the form of synchronization licensing. That may be why YouTube has been more greedy in some of its streaming deals. And finally, complicating things even further, YouTube is owned by Google and Google already has a streaming music platform in Google Play Music All Access. Again, the logic behind YouTube's streaming service is far from solid.
[A reader points out that Spotify has also been known to pay advances to labels in return for the rights to stream their catalogs. Still, YouTube's royalty model and Spotify's royalty model are not exactly apples-to-apples]
In many ways, YouTube is not alone in having to appeal to more popular artists to maintain its growth. Andrew Martin of VICE's Noisey blog asked last week, "Has SoundCloud Turned Its Back on Users in Favor of Major Labels?" And as Twitter and Facebook continue to court celebrities, some wonder if the services will continue to appeal to its earliest power users.
But YouTube's problem may run deeper, as the licensing and monetization structures between a subscription service and a user-generated video platform are very different. Perhaps YouTube will figure out a way to reconcile the two services (three if you count Google Play). But thanks to the early controversy over independent artist bullying, along with some unique challenges that standalone streaming services like Spotify and Rdio don't have, YouTube may find its bitten off more than it can chew.