YouTube's Payment Rate to Labels Halved in 2015, Analyst Finds

Esther Wojcicki and CEO of YouTube Susan Wojcicki at YouTube Brandcast presented by Google, 2016
Taylor Hill/FilmMagic for YouTube

Esther Wojcicki and CEO of YouTube Susan Wojcicki pose for a photo during YouTube Brandcast presented by Google on May 5, 2016 in New York City. 

YouTube's market-based system of paying recording artists and labels for each stream did rights owners almost no favors in 2015, despite a huge jump in usage of the video platform. According to findings by Midia Research provided to the Financial Times, the site increased payments to rights holders by 15 percent last year (to $740 million), but at the same time streams on YouTube and Vevo jumped 132 percent, totaling 751 billion. 

The research suggests that this kind of increase in streams year-over-year could could have generated an additional $755 million from YouTube, more than doubling revenues to the U.S. record business. The problem, of course, is that YouTube pays rights holders with a share of its advertising revenue, as opposed to Spotify and other streaming services which have minimum per/stream rates.

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YouTube's share of revenue to rights holders fluctuates based on the health of the global ad market, which experienced a drop in inventory prices last year. As a result, YouTube and Vevo's effective payment rate per stream went from an estimated $0.002 in 2014 to $0.001 in 2015, Midia suggests, based on data from IFPI and YouTube. According to the research, YouTube paid rights holders 55 percent of music video revenues in 2015, while Spotify (which has an astronomically lower view count) paid 83 percent. 

"YouTube is an ad business, first and foremost," said Mark Mulligan, an analyst at Midia Research. "But labels are not used to being paid based on how profitable the company is."

The findings arrive amid a still-raging debate over the "value gap" between digital consumption and the revenues returned by YouTube. Last month brought the publication of a print ad calling for reform of the Digital Millennium Copyright Act (DMCA), which gives services "safe harbor" from prosecution for hosting unlicensed content. In Europe, more than 1,000 artists called on Europe’s leaders to act, accusing YouTube of "unfairly siphoning value away from the music community and its artists and songwriters."

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YouTube points to its Content ID system, which finds and monetizes user-uploaded videos for rights owners, as proof that it is working in good faith. Mulligan said Content ID’s success rate -- which YouTube pegs at 99.5 percent -- means videos uploaded under safe harbor-enabled laws now pose less of a threat to rights owners.

Following recent criticism from several artists including Trent Reznor, who claimed YouTube was “built on the backs of free, stolen content,” the company responded, telling Billboard, "The overwhelming majority of labels and publishers have licensing agreements in place with YouTube to leave fan videos up on the platform and earn revenue from them. Today the revenue from fan uploaded content accounts for roughly 50 percent of the music industry’s YouTube revenue. Any assertion that this content is largely unlicensed is false. To date, we have paid out over $3 billion to the music industry -- and that number is growing year on year."