YouTube’s Chief Product Officer Neal Mohan has written an op-ed for Billboard in which he urges the music industry to stick with free streaming, wooing artists and labels with the promise that the big boom in online advertising income is yet to happen. He’s also twisted the industry’s anti-YouTube buzz term ‘value gap’ to do so.
Writes Mohan: “While the recent concerns artists have made about the copyright safe harbour reflect a fear of losing money from ad-supported streaming, the truth is, it is a new source of revenue that is poised to dramatically increase. As digital consumption grows and more print, radio and TV advertising dollars shift online, the music industry has a chance to reap a massive windfall”.
Although in the early days of streaming the music industry did often talk up the potential of advertising as a big future revenue stream, of late most labels have lost their enthusiasm for ad-funded services, mainly because the premium subscription platforms are now bringing in way more money than any of the freebie set-ups, whether its YouTube, Pandora or Spotify freemium.
They tolerate the latter because of the theory that Spotify freemium signs up premium users. Meanwhile, Pandora can operate under a compulsory licence in the US, and – the labels argue – the safe harbours that allow YouTube to operate an opt-out rather than opt-in streaming service increase the Google company’s negotiating hand, meaning labels have to sign up for a service they don’t actually approve of.
Much is made about how the free streaming services have by far the most users but bring in a modest amount of money. Of course, to an extent, that’s not an entirely new phenomenon, in that in the past the majority of people got the majority of their music via radio – free to access, and paying nominal royalties to the music industry – while a minority of consumers contributed the majority of the money by buying CDs.
The problem today, though, is that unlike with radio and CDs, the free and paid for options are very similar. But the upside, reckons Mohan, is that the potential ad income from free streaming services is significantly more than radio ever generated for the music community, partly because digital services commit to pay a much bigger share of ad income over to the labels and publishers.
“For all the people who purchase subscriptions, there is an even larger audience all over the world that won’t pay, or simply can’t afford the price of a subscription”, he writes. “The majority of music listeners – around 80% – are casual fans who, rather than buying CDs or digital downloads, are happy just listening to the radio. And despite earning $35 billion a year in ad revenue, radio pays no royalties to labels and artists in countries like the US, and only a very small share of revenue in Europe”.