By now we've all heard YouTube's assertion that it doubled the amount it pays labels and publishers in music-licensing fees last year, now totaling millions of dollars a month.
But while the focus of this figure is on official music videos submitted by labels as responsible for the bulk of these revenues, user-contributed videos containing licensed music will soon equal or even surpass them in significance.
Of the monthly payments YouTube makes in music-licensing fees, a total between one-third and one-half is currently generated from user-contributed videos, depending on the label and the month, according to sources familiar with the service's monthly payouts. User-generated content (or UGC) now contributes three times as much to YouTube's monthly licensing fees as it did in 2009. Additionally, the growth rate of UGC is outpacing that of official music videos in terms of both revenues earned and streaming traffic.
"So far the conversation is about official music videos, and we're seeing that user videos are becoming just as interesting in terms of both views and financials," says Glen Brown, head of music partnerships at YouTube.
Exactly how big those financials are is unclear, but sources put it at "seven figures" a month. In the grand scheme of things, that's not a huge amount, but it's growing.
The challenge to monetize UGC on YouTube is that advertisers pay less for it, which means YouTube pays rights holders less as well. CPMs for UGC is anywhere from five to ten times less than that for official music videos. But UGC compensates in volume. While there's only one official music video for any given song, there can be dozens of fan videos.
YouTube is crediting its Content ID system for driving this. Originally created to allow content owners to flag videos that contained licensed music for removal from the service, the system now includes tools to let owners monetize these videos instead.
"Content ID is often described as a blocking tool," says Brown. "But in the vast majority of cases it's a monetization tool. It's the thing that's made UGC blow up into this brand new business line."
According to YouTube, all labels participate in the program, and most songs are allowed to remain in the system. The most common exception is when artists object to the usage. And YouTube is also working on a way to better monetize those user-contributed videos that go viral, such as the famous "JK Wedding Entrance Dance" that used Chris Brown's "Forever." (The UGC video now counts more than 63 million views to the 5 million-plus that the official video has).
The overarching message YouTube is trying to get out there is that UGC is not the bastard stepchild for advertisers that it once was. When the service first began courting advertisers, there was a perception that user-generated content was inferior to professionally produced content. And to this day, official content still commands higher ad rates. But YouTube is still primarily a network of shared videos among users, so the company is keen to highlight UGC's potential at every opportunity.
"UGC is not like second-class content," says Brown. "There's some that is just as good and-judging by the views-more compelling to the audience than even the premium videos."