YouTube's Amazon-Style Negotiating Move Won't Work on Independent Music Labels

YouTube is planning to launch a music subscription service and while it does seem like a useful service, YouTube is running into issues establishing licensing deals.

YouTube is planning to launch a music subscription service. Considering how many songs are uploaded (not always legally) and played on YouTube now, this was a logical progression for the company. The service would be similar to Spotify, with the user paying a few bucks for unlimited music streaming without ads. Right now, most official music content on YouTube has a slew of ads before, and sometimes during, the video. While it does seem like a useful service, YouTube is running into issues establishing licensing deals.

Some independent labels are refusing to sign the licensing deals, claiming the prices set by YouTube are unreasonable. In a move reminiscent of Amazon's negotiating strategy, YouTube is threatening to block content from these labels that are resisting the licensing agreements. Their videos would become completely unavailable on YouTube general channels, if they don't sign onto the music subscription program — a very harsh tactic by YouTube. Beyond blocking their videos, YouTube would also stop paying the labels advertising revenue from the videos of users that feature the labels' music in the background. This is an important source of income for independent labels.

Oddly, Google's music streaming service did not experience any issues when negotiating licensing agreements last year. However, YouTube is offering a less desirable revenue sharing deal than Google, Spotify, or Beats Music. The industry standard revenue share is 60 percent to the music labels, 10 percent to the music publishers. YouTube shares 55 percent of revenue with the makers of non-musical content. However, they want to share even less with independent labels.

The service isn't expected to launch for several months, but testing cannot begin without having the licensing agreements in place. Thus far, Universal Music Group, Sony Music Entertainment, and Warner Music Group have signed licensing agreements.

While the move is similar to the negotiation strategy Amazon uses against book publisher, the key difference is that YouTube's music streaming service has a lot of competition. While Amazon is the industry leader in online book sales, and heavily impacts best seller lists, YouTube's music streaming service does not have the same power behind it. They are flexing a muscle they don't yet possess. They will be up against even their parent company's music service, in addition to several big players already in the market. When YouTube's movie renting service launched, it did not gain very many customers. A new pay service will be a hard sell to YouTube users who already have access to free music and can just mute the ads that come before it.

In the event YouTube blocks independent labels from uploading content and stops sharing user upload ad revenue, they could also be subject to investigation from regulatory organizations. The American Association of Independent Music has already been in communication with the Federal Trade Commission in regards to the situation. European independent music organizations have contacted the European Commission for a similar investigation.

If a licensing agreement cannot be agreed upon, both YouTube and the independent labels would lose out. Independent labels will miss out on potential profits, as well as an important marketing platform. YouTube will have a harder sell for their music service, as it will be missing key artists that other streaming services offer.