Billboard: The background to this dispute is that over the past few months, YouTube has reportedly approached a number of independent labels with new non-negotiable licensing contracts and have explicitly threatened that their content will be blocked if they are not signed. How did that lead to the decision to issue a formal complaint to the European Commission?
Alison Wenham: We were in dialogue with YouTube and we asked them to rescind the termination letters, which had sparked all the concern in the first place. It became clear after 24 hours that my request to withdraw the letters was not being taken seriously. We have been contacted by many of our members who tell us that in addition to the termination letters they have also received phone calls and emails, which amounted to intimidation and bullying. It became clear that [YouTube] were going to continue their campaign of essentially trying to force these companies into contract terms which they clearly feel are: A. Highly unfavourable. B. Out of step with other streaming services market rates. So going to the press was unavoidable. We hear that the actions and threats from YouTube are continuing unabated.
How advanced were the private negotiations between the two parties prior to this point and why did you feel the need to break cover and bring the dispute to public attention?
Wenham: We don't comment and have no involvement in commercial negotiations, but we do have every right to speak up when our members feel threatened. I had held off green-lighting the press action thinking that we were in a conversation that might lead somewhere. The effect of the termination letters was like throwing a grenade into a sector that has done nothing to warrant this. Independents' copyrights are no less valuable than the majors'. I think there is a very one-dimensional understanding at YouTube of what a record company is. They seem to think a record company just takes an artist, puts it on their platform and then takes money from them. It's an unbelievably naïve view. Record companies are there to find, develop, nurture and guide and sustain artists over a very long period. And this is the part of the industry that is under threat.
What do you hope to achieve by taking this course of action?
Wenham: What is at stake here is the continuance of diversity and choice for companies and consumers in the streaming market place and fair rates for independent record companies and their artists, who produce 80% of the world's music and control 34% of the U.S. market alone. Spotify, Deezer, Rdio, Beats have pre-licensed the sector on rates which are in line with all other copyright owners. YouTube, for reasons which are unclear, are trying to devalue the streaming market for producers.
YouTube is an essential facility, with over 80% of video streaming taking place on the YouTube platform. They have been fantastically successful, but it is important to remember whose videos and songs have created that success. The threats from You Tube involve a form of censorship -- essentially a take-it-or-leave agreement which, if not signed, will involve taking down content from the platform, which is a hugely contradictory action by a company which encourages free access for all. Having learnt that the three majors had done their deals -- probably inflating their market share with independent content via their distributors -- we believe there is a huge difference between what was offered to the majors and the rest of the independent sector. Basically, large and small independent companies have been given take-it-or-leave terms, and clearly the independent sector is, at present, minded to leave it.
The situation seems to have escalated rapidly since you made the initial press announcement about YouTube threatening to block independent content.
Helen Smith: The situation is so urgent that action needed to be taken quicker than you would perhaps expect when you have a normal set of negotiations with evenly balanced partners. The IMPALA board met last weekend at Primavera [music festival in Barcelona, Spain] and the decision was made then. While we were there we worked out that over 90% of the artists playing there were independent. If ever you needed an example of how important the independent music is to fans and consumers, it was there.
The independent sector has flourished in recent years, growing in market share and influence. Do you think that has played a factor in the timing of YouTube's actions, at all?
Wenham: The independent market share has been on the increase for some years and the majors are in many ways in quite a difficult spot. The independents are growing in both numbers of companies and types of companies operating. The market share has increased quite substantially. Sophisticated music fans are generally independent music fans. They are also the people who will pay £10 or $10 for a monthly subscription, so you get that symbiotic relationship between the independent sector and the paying consumer. This seems to be about denying both.
Smith: There is obviously a broader strategy here. Is it linked to the value and the success of the new YouTube streaming service? Is this setting a precedent that will somehow then force the streaming rate down for everyone? Or is it possible that the licensing deals with the majors are structured in a way that the rates are similar, but are compensated by other benefits?
It is understood that a high number of music partners and labels, both majors and independents, have already signed to YouTube's revised terms and licensing rates.
Wenham: I think it's quite interesting that [the EC] could look at the majors' contracts with YouTube, and they may find that much of the value is elsewhere than the actual streaming rate. If they look at a contract with Spotify, will they see that there here is a huge differentiation between the Spotify streaming rate and the YouTube streaming rate? There has been a huge amount of debate about the Spotify streaming rate -- they have been the rabbit in the headlights, if you like -- but we have always found Spotify to be a fantastic partner. They pre-licensed everybody, including the independents, and they work very fairly, very openly and transparently. Whereas, if YouTube did offer the majors a lump sum with a very low per-stream rate, you can quickly draw a conclusion that this is discriminatory towards all emerging and established artists on independent record labels who may only receive the stream rate.
What are some of the wider implications of European Commission intervention?
Smith: We have all read about the 'Spotify killer' strategy and we expect that this will also be part of what the European Commission will be interested in. European champions like Spotify and Deezer are leading the world's streaming market, so I think the Commission will want to know what the broader strategy of YouTube is and whether or not it is going to use anti-competitive strategies to undermine its competitors, Spotify being the most high profile.
So what happens next?
Smith: The complaint will be assessed and the first step is for the European Commission to decide is whether or not it needs to introduce urgent measures to stop YouTube implementing any of its existing threats or issuing any more threats. We believe it's also important that YouTube doesn't enforce any terms that have been agreed to under duress.
Wenham: We have companies across the world who find themselves in the same position, so this is a global attack by YouTube and it's a global push-back by us. Today, letters have gone to the culture ministers of 15 counties: Norway Finland, Sweden, Germany, Denmark, Italy, Spain, Portugal, U.S., New Zealand, Australia, France, Belgium, Holland and Austria, with more to follow.
What is the anticipated time frame for this to happen in?
Smith: As far as the emergency interim relief is concerned, I expect that we are talking about weeks. It is rare for such measures to be granted, but we look to break new ground and believe that we have solid arguments that this is necessary in the public interest. As soon as their investigation starts, YouTube will be co-operating with the commission, in any event.
Wenham: This action has become precedential. We are protecting all smaller rights owners. We are protecting the value of the creative copyright industries: independent film, music, books, games. This is where all new genres and trends emerge to the benefit of mainstream industry and it is the ability for these creative artists and their business partners to earn properly from their work that is at stake. It may be that YouTube feels that they can be a replacement for these companies, that their own platform is sufficient. But this shows a real paucity of understanding about the role of the independent sector. Making any successful creative product takes time, patience, skill and investment. It's an incubator process and we have to protect that.
Is this not just another example of the traditional music industry trying to apply its old practices and standards to a new, radically different marketplace?
Wenham: I think it's wonderful that you can go into the market in so many different ways now and the independent sector is growing as a result of that freedom. What I do feel is unfair is a wholesale transfer of value from the creative industries to the tech industries, benefitting neither the fan, the consumer, the artist, nor the companies who support them.