Last week, Billboard obtained a typical contract being offered by YouTube to its indie label partners for its new subscription service. Here's a breakdown of the five things that are really upsetting your favorite indie label.
1. YouTube is offering lower rates
Though most indies told us it’s not just about the money, the fact is the YouTube contract offers a lower rate of payment, of 65.5% of the service’s revenue — 55% to labels and 10% to publishers and performance rights organizations. Those company payment percentages are lower than the combined 70% in revenue (approximately) that on-demand services like Spotify or Rdio pay.
2. The YouTube contract’s "negative most-favored-nation" clause
Several indies Billboard spoke with are furious at a “negative most-favored-nation" clause, which favors the majors. Meaning: If any major label or publisher agrees to rates that are lower than the indies' rates set forth in the YouTube contract, then Google will have the right to reduce the indie labels' analogous rate accordingly.
3. YouTube wants to stay uncommitted to making payments – a better deal than what Spotify and others have
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 the payments from the ad-supported services of its competitors. Currently, in its ad-supported component, YouTube only pays on those music videos that have advertising connected to it. But YouTube's competitors have to pay labels for every single play on their services. A YouTube source claims that if every video had ads against it, it would drive away users and reduce plays.
4. YouTube doesn’t have enough skin in the game
Related to No. 3, indie labels are worried YouTube has no stake in growing the premium subscription business, because they do not provide indie labels with a minimum-guarantee payment, such as a minimum per-stream rate for plays. They’re also mad that the majors wanted to ensure that YouTube had skin in the game and received some type of minimum-guarantee requirement, according to major label sources. Indies, of course, did not.
5. YouTube’s subscription service will not grow the business – and may even cannibalize it
Indie labels worry a YouTube subscription service will not grow the overall pie, but rather cannibalize users from other services, or even its own ad-supported service. And, since it is paying a lower rate of 65.5% in the premium service (compared to 70%), it could actually reduce the overall pie.