All Streams Are Not Created Equal: Why YouTube’s Plan To ‘Frustrate’ Viewers May Delight The Music Biz

Mar 23, 2018

YouTube Plans More Ads Between Videos to ‘Frustrate’ Some Viewers Into Paying (Billboard)

YouTube’s Global Head of Music, Lyor Cohen, says his strategy to improve royalty payouts to music rights holders is to “frustrate” and “seduce” YouTube’s non-paying active users to become paying subscribers.

His plan? More ads on the free, ad-supported service. The idea seems to be that more ads to wade through, the more attractive an ad-free monthly subscription becomes to users.

YouTube is hands down the most-used music streaming platform in the world. So any moves it makes is significant. But this is particularly meaningful because the difference between ad-supported and paid/premium streaming is a real hot button topic in the music industry. That’s because it has real consequences on royalty payouts.

Many people don’t realize that music rights holders are paid differently for subscription-based streams vs. ad-based streams, even when both are on-demand.

For instance, rights holders receive between $0.004 to $0.007 on YouTube from users who pay a monthly fee. This is the “all-in” rate, divided between the sound recording and the musical composition.

But they only earn between $0.002 - $0.003 from free-tier users supported by ads.

That means royalties paid on 1 million streams from paying users range from around $3,000 to $6,000 for the sound recording, and $800 to $1,500 for the composition.

But 1 million ad-supported streams contribute only about half that--$1,750 - $2,500 for the sound recording, and $450- $650 for the composition.

And since the vast majority of YouTube’s music streaming activity comes from its ad-free tier, this is a point of contention in the music biz.

YouTube receives a great deal of criticism from the music biz for the relatively low royalty payments it makes compared to other streaming services. According to IFPI estimates YouTube pays seven times less than Spotify for every 1,000 plays (and Spotify has both ad and paid tiers).

Yet its effort to establish its own music subscription services to compete with Spotify (“Google Play” and “Red”) have struggled. Will its plan to ‘frustrate’ and ‘seduce’ users actually equate to more paying subscribers (and with it higher royalties for rights holders)?

We’ll see. Many hope so, because subscription-based streams are the key to the music industry’s recovery.

And now for this week’s other headlines:

Benom Plumb, Assistant Professor of Music Industry Studies at the University of Colorado Denver, reviews the biggest stories of the week affecting music royalties. He is a music industry professional, not an attorney. For more info about Benom, visit his website at www.professorplumbmusic.com.