On Tuesday of this week news broke that YouTube would begin blocking videos from artists on indie labels that had not signed on to its new terms, a set of contracts it's making partners agree to before it launches a paid streaming service later this year. Fans and artists were understandably upset, but YouTube insisted that the majority of its partners in the music industry, over 90 percent, had already signed on.
Today a leaked memo, obtained by The Verge from an industry source, gives the perspective of one indie label that did sign on. Believe Digital, an independent label based mostly in Europe, said that it agreed to the terms in February of 2014, after six months of negotiations. The contract covered both the preexisting YouTube service and the yet-to-be-launched paid streaming service. Critically, Believe says it was a good deal. "The new contract includes a significant increase of the revenue share rate on UGC [user-generated content] for sound recording. This type of use is currently the largest source of revenues from YouTube." Details of the leaked memo were first reported by Music Week.
Indie labels want YouTube to pay them the same rates it pays majors
Believe's memo says that it researched the rates YouTube was offering and found they were on par with those offered by services like Spotify, Deezer, and Rdio. Critically, it was also the same deal YouTube gave the big players. "From a market standpoint, the information we have is that the rate Believe Digital has negotiated with YouTube for the subscription service is strictly identical to the rate negotiated by major labels."
The memo from Believe was careful to voice support for WIN, the industry trade group that has been openly criticizing YouTube's new terms and its plans to block access to videos from artists on labels that don't sign. "Aside from the anti-competition issues raised by WIN (blocking of the content by YouTube, which we can not comment on other than to say that we have not experienced them ourselves), my personal opinion is that the views recently expressed by WIN and IMPALA address true, important, and very legitimate concerns."
"A market that has shrunk significantly (and continues to do so in a number of countries.)"
Along with Believe, labels such as The Orchard/IODA, Toolroom, Kontor Records, Made in Etaly, T-Series, YG Entertainment, SM Entertainment, Farolatino, OneRPM, Spinnin Records, and Ultra Records have agreed to YouTube's new terms. Negotiations with the remaining unsigned labels are ongoing and YouTube is eager to avoid the bad press and user confusion that would come with blocking videos. Sources say that the hammer could drop as early as Monday of next week, although it would apply only to certain songs and in certain countries, meaning the impact might not be readily apparent to most people on YouTube.
The indie labels clearly have public opinion on their side, while YouTube has the leverage of size and financial resources. As Believe points out near the end of its memo, "In a market that has shrunk significantly (and continues to do so in a number of countries), putting in place a proper framework to improve the access of independent labels to financing is a critical element."