In a nutshell, rightsholders believe that some Internet platforms that allow users to upload audio-visual content abuse their immunity in order to make money from copyrighted content for which they hold no licenses.
Given the recent hostility shown by Hollywood and the music industry towards Google, it’s no surprise that YouTube has become the focal point in this war of words.
In particular, the world’s leading record labels argue that YouTube draws a massive commercial benefit from infringing songs uploaded by its users since it avoids paying for the kinds of licenses ‘fairly’ negotiated with the likes of Spotify and Apple.
In its defense, YouTube says it does all it can to combat infringement, quickly taking down unlawful content when asked to and spending small fortunes on systems like Content ID, which allows creators to monetize otherwise infringing content, should they choose to do so. It also pays huge sums to the labels.
It’s a problem that may eventually be settled by a change in the law but in the meantime the entertainment industries are working hard to paint Google and YouTube as freeloaders making a fortune from other people’s hard work.
Exactly how much money is at stake is rarely quantified but a new study from the Phoenix Center in Washington claims to do just that. The numbers cited in ‘Safe Harbors and the Evolution of Music Retailing’ by authors T. Randolph Beard, PhD, George S. Ford, PhD, and Michael Stern, PhD, are frankly enormous.
“Music is vital to YouTube’s platform and advertising revenues, accounting for 40% of its views. Yet, YouTube pays the recording industry well-below market rates for this heavy and on-demand use of music by relying on those ‘safe harbor’ provisions,” the paper begins.
Citing figures from 2016 provided by IFPI, the study notes that 68 million global subscriptions to music services (priced as a result of regular licensing negotiations) generated $2 billion in revenues for artists and labels at around $0.008 per track play.
On the other hand, the 900 million users of ad-based services (like YouTube) are said to generate just $634 million in revenues, paying the recording industry just $0.001 per play.
“It’s plainly a huge price difference for close substitutes,” the paper notes.
What follows in the 20-page study is an economist-pleasing barrage of figures and theories that peak into what can only be described as an RIAA-friendly conclusion. As an on-demand music service, YouTube should be paying nearer the same kinds of royalties per spin as its subscription-based rivals do, the paper suggests.
“More rational royalty policies would significantly and positively affect the recording industry, helping it recover from the devastating consequences of the Digital Age and outdated public policies affecting the industry,” the paper notes.
“Simulating royalty rate changes for YouTube, one of the nation’s largest purveyors of digital music, we estimate, using 2015 data, that a plausible royalty rate increase could produce increased royalty revenues in the U.S. of $650 million to over one billion dollars a year.
“This is a sizeable effect, and lends credence to the recording industry’s complaints about YouTube’s use of the safe harbor,” it concludes.
Given the timely nature of this report from an industry perspective, TF asked co-author George S. Ford what motivated the study and if any music industry entity had commissioned or been involved in its financing.
“We do a lot of work in copyright and I’ve run into this type of problem in numerous settings, including the recent SDARS III case before the CRB. I’ve wanted to write on this topic for ages and finally got around to it,” Ford told TF.
“The Phoenix Center does not take money to do specific projects, except for instances where a government asks us to do something, and then we indicate funding was received for that project. As noted in the paper, we relied on the RIAA for data.”
Since that did not specifically answer our question we tried again, asking whether the RIAA, IFPI, or any of their member labels are donors to and/or supporters of The Phoenix Center. We received no response.
The full paper can be downloaded here (pdf)
Update: “For a variety of reasons, the Phoenix Center does not disclose its patrons,” Ford has confirmed.