Even though YouTube is said to be offering lower rates than those paid by services like Spotify
and Rdio for its new subscription service, that isn't even the part of its licensing contract drawing
the most anger from independent labels. According to early versions of the YouTube licensing
contracts for indie labels and indie publishers, copies of which were obtained by Billboard,
YouTube will pay either a percentage of revenue or a minimum per subscriber to its service,
whichever is greater. The YouTube contract says its premium service rate for audio-only music
adds up to payments of 65.5% of the service’s revenue, 55% to labels and 10% to publishers
and performance rights organizations. For music videos the rate breaks down to 55% of revenue,
with 45% going to labels and 10% to publishers. As for the minimum subscriber rate, YouTube
is providing an alternative revenue bucket of $5.50 per subscriber per month to labels and 50
cents to 80 cents per subscriber per month, depending on the music product, to music publishers.
Those company payment percentages are lower than the combined 70% in revenue (approximately)
that the interactive, premium component of services like Spotify or Rdio pay to labels and publisher
rights owners, according to label and digital service sources.
The main beef with YouTube is the company's take-it-or-leave-it approach, which they say includes
an onerous and negative most-favored-nation clause. If any major label or major music publisher
agrees to any rates for the YouTube service that are lower than the rates set forth in the YouTube
contract, Google will have the right to reduce the indie labels' analogous rate accordingly.
Indie executives are furious about this clause because they say that the majors can likely negotiate
a three-prong payment scheme that will either include a non-recoupable advance, or a per-stream
minimum rate that will negate the percentage rate from kicking in. And since indies don't have the
ability to negotiate a third prong to the YouTube payment scheme, they are the ones who would
get stuck with a reduced payment, not the major labels.
But some kind of most-favored-nation clause is a standard term across all other music services,
a Google source says. This clause is to ensure that all labels -- majors and indies alike would get
the same deal for future partners integrating with the service. To claim that the impact of this clause
disproportionately affects indies would be inaccurate, they claim. So, if YouTube was was to launch
a promotion for the service or bundle the service with another player for instance a mobile carrier
which had different terms with labels -- then the bundle would offer the same rates to all labels --
the lower rate, not the higher one.
But one service provider points out that Google is acting similar to how iTunes and Amazon operate.
"When iTunes introduced its matching-cloud service, the labels were not given any choices. They
were told 'this is the service, you will be in it and here is what we will pay,'" that executive recalls.
"There wasn't any outcry from indies then. Google sees itself on the same level as iTunes and acts
The other major issue that indies have with YouTube's premium service centers on the ad-supported
service. By moving to compete against services like Spotify and Rdio, indie labels argue that YouTube
needs to bring the ad-supported component of its service to parity with payments for all music streamed
in the ad-supported services of its competitors. indie labels are worried that the other subscription
services will complain about all the free plays on YouTube's service, and will go on to make similar
demands. Moreover, indie labels say that they are bothered that YouTube has no stake in growing
the premium business, because they do not provide indie labels with a minimum-guarantee requirement,
such as a minimum per-stream rate for plays.