UMG ’out of contract’ with YouTube, Spotify

As Universal Music Group’s contract with Google’s video streaming service came to an end earlier this year, Universal showed little interest in renewing it and have since been on a month-to-month contract, not locking themselves in to anything.

It’s now been reported by Musicallythat Spotify are in a similar situation with not only UMA but Sony and Warner also. With contracts up in the air, the world’s leading streaming services could potentially be in serious trouble should all three labels decide to pull their catalogue from the sites with just a month’s notice.

Although this scenario is unlikely to happen, it has given the three majors serious leverage to renegotiate their contract with YouTube. According to the Financial Times, the three majors are demanding a fixed contract and/or compensation from YouTube for the growing ‘value gap’ between the amount of traffic YouTube receives everyday in comparison with the amount of money the site pays out to music right holders.

When it comes to Spotify, all three labels are shareholders in the company so it seems counter-productive from the labels to pull out at the last minute. The month-to-month basis merely buys both sides some time to re-negotiate a more appropriate contract that will favour artists through licensing fees.

According to IFPI’s Global Music Report, released overnight and covered by TMN, ad-funded streaming models comprise the biggest on-demand music audience in the world, with over 900 million users. Yet the US$634 million advertising-supported revenue sector makes up only 4% of global music industry revenues.

In 2013 The Verge reported Spotify was renewing their contracts to edge into profitability by controlling content costs and growing subscriber base. Now it is time to renew that contract again.

Free streaming has always been a grey area when it comes to who gets what and how much, but all three major labels are determined to gain transparency with both Spotify and YouTube. The major labels are not YouTube shareholders and continue to see its free tier as unfair competition for the premium tiers of Spotify, Apple Music and other services. However, YouTube arguesthat in comparing entertainment markets, 80% of people choose not to pay for services anyway.

YouTube CEO Robert Kyncl argues that YouTube’s income relies heavily on the growth of the global advertising market (currently sitting at $450bn a year), which will be a major factor in the renegotiation of the contracts.

YouTube’s current user base is sitting at a solid one billion users per month and the platform strongly believes that it can gain more users from TV, radio and other video platforms such as Netflix in the next coming year in an attempt to gain more advertising dollars.

From the labels point of view, as lovely as the advertising dollars are, subscription services are still generating more income than ad-funded platforms. This creates serious concern of the continued breakneck growth of ‘free’ which could affect the fragile uptake of paid services, a growth we never thought we would see again and have not seen since 1998 (as seen in the IFPI Global Music Report covered by TMN).

All three major labels are pushing for a reform to the DMCA rules that currently allow YouTube to shed little to no responsibility for copyrighted content on its platform. If YouTube wants to remain where it is, some serious changes will need to be made to its contracts with labels, who to be clear, are not ‘unlicensed’ – their contracts have merely shifted to a rolling monthly agreement. Ideally though, YouTube and Spotify will want to lock all three labels into a two-year contract again.