YouTube Just Made A Very Silicon Valley Argument To The Music Business

After weeks of taking body blows from the recording industry, YouTube came off the ropes and let its first counterpunch fly Thursday, with a blog post by Christophe Muller, the Google-owned company's head of international music partnerships.

In it, Muller demanded that YouTube, the world's largest on-demand streaming music service, be treated less like Spotify or Apple Music, and more like terrestrial radio.

"YouTube offers promotion," Muller writes. "Promotion that pays."

That argument — that YouTube is offering a platform for exposure that can be monetized in other ways — is one that Silicon Valley companies have been making for years. YouTube in its early days, Facebook, Pandora and Bittorrent all argued that their platforms were fundamentally promotional, like radio, and served the business by triggering sales later. It's the content industries that have grown progressively less receptive to it.

But the particulars of this argument — that YouTube is like terrestrial radio — may wind up opening YouTube to an enormous amount of criticism, particularly bad timing, given the fact that the service is either negotiating, or about to renegotiate, its licensing agreements with the world's biggest record labels.

Over the years, YouTube has paid out more than $3 billion to the music industry, a number it says is growing rapidly year over year. In a report the International Federation of Phonographic Industries released earlier this month, it was estimated that all ad-supported music streaming, most of which came from YouTube, generated $633 million in revenue for music rights-holders during the previous calendar year. That total was generated by hundreds of millions of people listening to billions of songs all over the world; separate research conducted by MIDiA estimates that 800 million people watch music videos on YouTube every month.

By comparison, Pandora, an ad-supported digital radio service which is active only in three countries and has a monthly user base that is less than a tenth the size of YouTube’s, has paid those same rights-holders $500 million over the past nine months.

Muller's post is likely the first piece of a larger campaign designed to get out in front of any criticisms that might be coming from the recording industry. The IFPI noted that over the past year, while consumption of music on streaming services has exploded, the royalties paid out have not kept pace with that growth, primarily because so much of it occurs on YouTube. This problem has been deemed the "value gap," and the IFPI's head, Frances Moore, indicated that its closure will be her industry's top priority in 2016.

The battle between YouTube and the recording industry is going to go on for a while. According to numerous reports, YouTube's licensing agreement with Universal Music Group, the world's largest record label, has expired, and the deals with the other two majors, Sony Music Entertainment and Warner Music Group, are poised to lapse in the coming months.