The industry’s biggest frenemy has always helped break acts like rising rap star Roddy Ricch. Now it’s signing up more subscribers and bringing in serious revenue — and finally winning over some label executives.
Last spring, Lyor Cohen was in Mumbai, India, when, as he recalls it, his mind was “splattered all over the ground.” The 60-year-old was there for the India launch of his company’s subscription product, YouTube Music Premium, and acts hailing from across the subcontinent were in attendance, with some traveling thousands of miles to perform. “The artist and label community came out in such a loving way,” says Cohen, perched at the edge of an armchair in YouTube’s Chelsea Market offices in Manhattan. “They’re going through a transitional moment, with the benefit of exploding connectivity. I pay a lot of tolls being here, but I get so much joy and pleasure by experiencing things like this.”
A little over two years ago, Cohen joined YouTube as global head of music, with the difficult job of turning around its relationship with a music industry that saw the video giant as building a business off its content. The service’s ad-supported tier pays a fraction of what subscription services pay, and rights holders had been pushing European legislation that would close what they dubbed “the value gap.” YouTube, which tells Billboard it paid $3 billion to the music business in 2019, had cast the labels as anti-innovation and the legislation as potentially ruinous to the open internet. Even as the two sides renewed licensing deals, animosity only seemed to grow in what came to resemble a Cold War-type standoff.
The origin of the hostility lies in the “safe harbor” — embedded in the Digital Millennium Copyright Act in the United States — that protects YouTube from legal liability for infringing content that users upload as long as it responds promptly to a takedown notice. That means rights holders have essentially faced a choice between licensing their content or having it appear on the service anyhow and depending on YouTube’s Content ID program to flag what’s unauthorized and sending takedown notices about the rest. As a result, YouTube has always had more leverage in negotiations than services like Spotify and Apple Music — to the point that some rights holders felt the company made them offers they couldn’t refuse. “There’s no getting around the fact that even if YouTube doesn’t have licenses, our music will still be available but not monetized at all,” wrote Warner Music Group (WMG) CEO Stephen Cooper in a spring 2017 internal memo leaked to the media.
But that was then. During the last year or so, Cohen has presided over a slow thaw in the frozen relations, one brought about by a mix of industry resignation about changing the state of play and enthusiasm about the growth of subscription services, plus YouTube’s efforts to be a better promotional partner and the beginnings of success with its own paid offering. YouTube Music Premium, a subscription service that launched in May 2018, finished 2019 with 20 million paid subscribers and another 5 million using free trials — a jump of 60% over 2018.
The money makes it easier to get along. YouTube has now paid out $12 billion to the music business globally to date, the company tells Billboard, triple the amount it reported by the end of 2016. And multiple record-company sources say YouTube executives have told them that the company intends to become their single largest source of revenue by 2025, which they view as at least a possibility. “I think people are starting to recognize that we are very serious about our subscription effort,” says Cohen. “I like to say there are two engines of our plane: one of advertising and one of subscription. They’re starting to recognize that spiel as being accurate.”
Some of the credit for this more productive relationship goes to Cohen himself, a record-label veteran who worked at Def Jam in the 1980s, ran the recorded-music business at WMG until 2012 and founded indie venture 300 Entertainment (in which he remains the largest shareholder) in 2014. Among his first priorities: hiring a label relations team and augmenting the small artist-relations one, and setting up meetings with label executives to tell them he understood their concerns and priorities. “Before Lyor took over, I don’t think we had anybody there to talk to,” says Atlantic Records chairman/COO Julie Greenwald, who was Cohen’s protégée at Def Jam. “All we could do was put our music videos up and cross our fingers. He came in and introduced marketing ideas and programs to help break artists.”
When he took his job, Cohen says that the misunderstandings went in both directions. “Once I described their fears and how we played into their fears to [YouTube] leadership, they were hugely sympathetic and understanding,” he recalls. “The key is [the word] ‘sustainable.’ To me, sustainable means that the consumer wins, the artists and songwriters win, the people who look after them — managers, publishers, labels — and then the platform wins. Sustainable means that everybody eats. And I think we’re on our way.”
That doesn’t mean they’re there yet. On Feb. 4, Google parent company Alphabet revealed YouTube’s financial results for the first time: The video service took in $15.1 billion in ad revenue in 2019, nearly double its 2017 revenue of $8.15 billion. With 2 billion monthly logged-in users and 20 million paying music subscribers globally, some industry sources say YouTube should be paying over $3 billion a year to the music business, though it’s difficult to say because YouTube doesn’t disclose the percentage of views it owes to music content. Spotify, by comparison, paid the music business $4.8 billion in 2019 with six times the paying subscribers, but only about one-tenth of YouTube’s total monthly users. And while label and publishing executives acknowledge YouTube’s investment in subscription acquisition that’s generating meaningful returns, there isn’t a lot of cheering on the business side about the payouts from its advertising.
“YouTube’s relationship with songwriters is a mixed bag,” National Music Publishers’ Association president/CEO David Israelite tells Billboard. “There have been positive steps taken regarding the ability of copyright owners to manage content and license directly, but the rates are not truly negotiated in a free market — so the rates YouTube pays to songwriters are still far too low and a fraction of the value that the songs are worth. YouTube does pay increasingly significant money, but it is really small in comparison with how much revenue YouTube generates overall.” That difference — between YouTube’s payouts and those of Spotify and Apple Music, or if you prefer what YouTube pays to use music and its value in the free market — is what creators and industry executives call the value gap.
Until recently, many label and publishing executives thought of YouTube as a service consumers could use instead of subscribing to Spotify — and thus a way to trade subscription dollars for advertising dimes. YouTube often countered that it provided a means to generate additional revenue from casual music fans who might not otherwise subscribe anyway. But a growing amount of research reveals that many music fans are using both: A Nielsen analysis shows that artists who upload a video for a song on YouTube see a 40% boost in audio streams across all platforms. “What we see is that most music fans are using multiple music services, so a Spotify or Apple subscriber is also using YouTube,” says Stephen Bryan, a longtime WMG veteran who is now YouTube’s director of label relations. “I think the industry increasingly understands that YouTube is where, regardless of which subscription service they’re using, they can essentially reach their entire fan base.”
That means YouTube can be an invaluable promotional tool for paid consumption. And labels are becoming increasingly more comfortable with YouTube’s platform and industry outreach, as well as its ability to wring more money from its various tools and programs.
At the simplest level, that stems from the January 2018 consolidation of Vevo and YouTube artist channels into central hubs for individual acts where official videos can coexist with interviews, live performances, tour diaries and live streams, as well as drive merchandise, ticketing and direct-to-consumer outreach all in one place “without concern that they are fragmenting their audience,” as Interscope Geffen A&M chairman/CEO John Janick puts it.
YouTube also makes the music industry more competitive on the distribution side. Not so long ago, Apple dominated the download business to the point that it practically dictated prices to the labels. Those labels now have to balance their unease with YouTube against their fear that Spotify, Apple or Amazon will come to control the streaming business.
It's a Thursday night at YouTube’s offices, and Cohen is singing along, beer in hand, as Grouplove performs its song “Colours” for 100 of its biggest fans. The show is part of YouTube’s Music Nights, just one of a growing number of ways the company now gets behind artists. There’s social media support, physical billboards in key cities and markets, a series of videos diving into an artist’s journey, use of YouTube Spaces to record content for fans, and editorial playlisting and banners that are placed in campaigns not just for YouTube, but throughout the broader Google ecosystem, according to longtime artist relations chief Vivien Lewit. There is its breaking artist program, Foundry, and its developing artist program, Artist on the Rise, as well as YouTube Spotlights and individual events. “They pull every lever and turn every knob with every opportunity on their platforms to create the biggest impact they possibly could,” says Republic Records chairman/CEO Monte Lipman. “We’re in a very competitive business, and we’re always searching for any competitive edge we may see.”
Dua Lipa was part of YouTube’s first-ever Foundry program in September 2015, and the company provided promotional and marketing support in the United States and the United Kingdom as the singer recorded special sessions at YouTube Spaces that she uploaded to her artist page. “They were quick to identify her potential as we developed her,” says Warner U.K. president Phil Christie. “Their willingness to spend money early is really well-received.” Others who have come through the program include Rosalía, Clairo and Omar Apollo. “It’s a great platform for artist development because it’s a way consumers can see more than just the music video,” says Greenwald. “They get [the artist’s] point of view.”
In April 2019, when Taylor Swift was counting down the hours before the debut of the video for her single “ME!,” YouTube set up a digital waiting room, encouraging fans to hang out and converse as they waited for the clip’s official release. It was a high-profile experiment with YouTube’s new Premieres program, the company’s attempt to re-create some of the anticipatory magic that has disappeared in the digital age.
“We turned it into a bit of a show — think of it as the trailers that drop before the main picture,” says Celine Joshua, GM of commercial, content and artist strategy at Universal Music Group. Swift broke the record for most views in a 24-hour period among solo or female artists: 65.2 million, besting Ariana Grande’s “Thank U, Next” (55.4 million), which had been one of the first videos to utilize Premieres a few months prior. “It also creates [user-generated content],” says Joshua. “When we create content, fans then go off and create theirs. So all of this helps accelerate that and gets the fan involved as well, which is ultimately the most important piece.”
The company offers more than just tools to help break new artists. Last June, YouTube and UMG announced a partnership to remaster over 1,000 music videos from the Universal Music Enterprises vault, upgrading clips from the ’70s, ’80s and ’90s to HD and more recent videos to 4K. A month later, Queen’s “Bohemian Rhapsody” became the first pre-1990s video to reach 1 billion views on the platform, the result of one of a number of promotional initiatives the service worked on with the band. Nirvana’s “Smells Like Teen Spirit” video passed the 1 billion mark in December.
YouTube also promises to deliver subscribers beyond the markets where the traditional music business has done well. Cohen and his team have spent the past 18 months traveling the globe, launching YouTube Music’s new app and premium product in 78 markets. The company has staffed up significantly in markets like India, where local music accounts for 70% of music consumption on the platform, according to YouTube Music director of product T. Jay Fowler, and recently hired WMG veteran Dan Chalmers to head up its operations in Europe, the Middle East and Africa. The company is still looking for an executive to oversee Asia.
Last June, Ne-Yo and Ayesha Curry were onstage at the 2019 BET Awards to present the honor for best international act when they realized that the winner, Burna Boy, was nowhere to be found. But before Curry could say that he was unable to accept, Ne-Yo stopped her and pointed out the Nigerian artist’s mother in the crowd, then brought her onstage to accept the award for her son.
The night before the event, YouTube had hosted its first-ever Dope Africans gathering, a party that director of urban music Tuma Basa says was intended to bring together overseas artists and second-generation music industry figures in one room. “You remember how Ne-Yo announced it and was like, ‘Hey, Mama Burna is here’? And she came up and accepted it for him?” asks Basa animatedly in a listening room at YouTube headquarters. “Do you know how Ne-Yo knew Mama Burna was there? Because the night before, Ne-Yo had met Mama Burna at Dope Africans!”
It’s clear Basa genuinely lives for these moments. The former curator of Spotify’s Rap Caviar — the one who put that influential playlist on the map — prides himself on bringing people together, and when asked what it was that pulled him away from Spotify into the welcoming arms of YouTube in March 2018, he has one word: “Reach.”
For all that’s said about YouTube at conferences and in boardrooms around the world, its impact is arguably felt most in the streets. It’s there that an artist like 20-year-old YoungBoy Never Broke Again can go from local Louisiana entertainer to the single most-viewed artist on YouTube in the United States in both 2018 and 2019, with 2.5 billion views in the past 12 months despite having just one song reach the top 10 of the Billboard Hot 100. “If you go to a barbershop, they’re playing YouTube music videos,” says Basa. “It’s overseas and also young kids, really young kids. He knows where his audience is, where to find them. And also, there’s no in between — it’s just out, and a video can be dialogue or make them dance, you know what I mean?”
It’s this immediacy that has helped make YouTube so appealing in an increasingly viral social media world. But the music business has come to embrace it because, unlike Instagram or Twitter, YouTube is, theoretically, a monetized ecosystem where interactions can earn more than just likes and views. And, as Lipman says, “They’ve also become a very valuable source of revenue, which makes the relationship even more dynamic and important.”
“Not all clicks are equal,” says Cohen. “We’ll never get the same number of clicks as Instagram, but the people that you’ll engage with on YouTube are those that will buy your records, stream your records, buy your merchandise, stand in line.” Adds Joshua, “You do it in a commercial environment with YouTube.”
YouTube is also helping to simplify the process of turning interest into revenue, rolling out options on official artist channels that let fans buy merch and tickets through partnerships with Merchbar in 13 markets and Ticketmaster, AXS and Eventbrite in five. In terms of revenue, it’s still early days, sources say, but the opportunity for scale is clear. “We’ve really beefed up our merch and commerce strategy on these channels and try to tie that into each video drop,” says Joshua. She cites the release of Justin Bieber’s “Yummy,” his first solo song in five years, which was part of YouTube’s Premieres program. UMG released a limited-edition T-shirt only available during the Premiere window; it sold out within an hour. “If you treat this platform just as a place to drop a video, then that’s about all that will happen,” continues Joshua. “It’s like a car: You can sit in a Ferrari and drive it, but if you know the right features and the way the car was designed, you can get the best performance out of it.”
That doesn’t mean YouTube’s road ahead will be a smooth one. As YouTube Music’s power and influence grow, more attention will naturally turn to its algorithm and the factors that influence it. (Outside of music, the algorithm has been harshly criticized for promoting alt-right and conspiracy videos, for example.) Eighty percent of YouTube watch time comes from internal recommendations — when a video ends, a new one is suggested and automatically served up next — and, while Cohen says the labels do not play a direct role in guiding or influencing the algorithm’s recommendations, he doesn’t rule it out in the future.
Fowler calls YouTube Music’s playlist ecosystem “the experts and algorithm model,” and it relies largely on user data to determine what a person may want to hear, but also employs a human element. When Labrinth, Sia and Diplo — all of whom have significant YouTube followings — released a project under the moniker LSD, for example, the algorithm failed to recognize it and YouTube’s human experts stepped in. “If we know that something is happening from a synch license perspective or we know an artist is going on tour, we can begin to nudge the algorithm with extra information,” explains Fowler. “We don’t do this from a broadcast promo perspective. It’s more about informing [the algorithm, and it] will do its job of prioritizing and placing the content in front of fans.”
Then there’s the public policy front — especially in Europe. In March 2019, the European Union voted to finalize a sweeping copyright reform package that will make platforms like YouTube liable for copyright infringement and require them to pay “fair remuneration” for their use of content. (However, the United Kingdom’s exit from the EU, which went into effect Feb. 1, means that the world’s third-largest music market may not implement the legislation.) The EU’s 27-member countries now have less than two years to translate the directive into national law, and both sides have the clout — and the financial incentive — to lobby hard for rules that help them. How hard rights holders fight may depend in part on how successfully YouTube continues to sign up paying subscribers.
Helen Smith, executive chairman of the European indie-label trade association IMPALA, says she believes the directive will reshape copyright law beyond Europe and notes that it simply “clarifies what the courts had already said: There is no rationale for a safe harbor when you’re in the business of distributing content, and you need a license. This legislation makes that clear and makes it impossible for platforms to try and argue against that.”
“I get that they have a different vision for their business model, and we respect that,” says American Association of Independent Music (A2IM) president/CEO Richard James Burgess. “But at the same time, we’re all concerned that there’s a huge demand for music, but the actual per-stream payment becomes so low that only the hugely successful artists are actually able to make a living. We would like to see more of a middle class in the industry, both for labels and artists. But I do believe there are good signs.”
Indeed, there are indications that YouTube’s per-stream rate is increasing, with its blended subscription and ad-supported per-stream rate averaging $0.006 per stream, higher than Spotify’s and lower than Apple’s. (Spotify’s per-stream rate may be lower in part because of its users’ higher average engagement.) Still, as a digital advertising behemoth, Alphabet is still new at convincing users to pay for its products, and it remains to be seen how much YouTube can grow its music subscription business.
“I feel like I’m making a daily contribution — I’m getting that feedback from the labels and the artist community,” says Cohen. “Everybody is saying that they’re feeling a palpable change, so that’s encouraging to me. But I want to feel proud of my contribution in this period to an industry that I just absolutely adore and love. I still feel that I have to do more here.”