New YouTube Revenue Streams for Publishers

Since it’s inception in 2005, YouTube has provided a platform for users from around the world to upload audiovisual content. Major labels, with the exception of Warner Music, independently reached agreements to receive compensation for their master recordings with YouTube, but publishers have been unable to establish any formal agreement with the video provider.

As a result, the publishing community, in accordance with the NMPA, set out a longstanding class action lawsuit against YouTube and its owner, Google. In recent months, legal rulings for the suit have favored YouTube over publishers. As the case waits in the U.S. Court of Appeals for the Second Circuit, YouTube has prepared three licensing options for publishers to begin receiving compensation. If a publisher chooses to enter any agreement, they release all pending litigation rights to the class action suit and forgo the ability to benefit from future judgments from those suits.

The licensing process is being facilitated by RightsFlow, a royalty service provider purchased by YouTube in January of this year. Earlier this month, YouTube and RightsFlow representatives held a small conference for independent music publishers at Nashville’s BMI offices to discuss the available licensing options.

Option 1: The first option available for independent publishers is a three-year agreement with the Harry Fox Agency (HFA) under terms negotiated by the NMPA. Under the terms, the HFA charges a 7.5 percent administrative fee from YouTube earnings. Those publishers who opted into the HFA agreement by mid January of this year were subject to share in a $4 million recoupable advance determined by mechanical earnings and market share between 2007-2010. The advance is not a settlement; just a pool paid-forward towards future earnings by YouTube. The HFA has also secured exclusive rights for auditing YouTube’s royalty statements on behalf of its participating publishers. For delinquent payment over 45 days, the HFA has secured a 1.5 percent, per month late provision.

Option 2: Publishers can sign a five-year direct license with the video site. Through this option, publishers evade the third-party HFA administrative fees, but forgo audit rights or the late payment provisions. A publisher also retains direct control with their YouTube online content ID tool. This site manages publishers’ accounts including blocking, monetizing and tracking musical works on YouTube. Under the HFA agreement, the HFA would perform content monitoring on behalf of its clients.

Option 3: Independent publishers can enter Third Party Aggregator agreements. These arrangements enable publishers to collaborate amongst each other to negotiate alternative terms with YouTube. Specific terms of this option have yet to be determined.

The proposals are not retroactive for revenue previously accrued from the site, nor will royalties be based on ‘per view’ rates. Rather, revenues will be based on ad sales within the particular upload as outlined below.

Under the agreements, videos are classified within three categories. 1) Official Commercial Artist Music Videos; royalties typically handled directly between labels and publishers, therefore not included in the agreement. 2) User-Uploaded Videos with Commercial Recordings earn 15 percent of net ad revenue from the video. 3) User-Uploaded Cover Videos can earn 50 percent of net ad revenue.

VEVO President/CEO Rio Caraeff shed light on rarely seen financials for his company in a recent interview. About 35-40 percent of VEVO’s traffic comes from YouTube, which is an outlet for VEVO’s syndicated content. In an effort to provide perspective, Caraeff’s financials surrounding digital video income for his site will be helpful.

“In the last year alone we’ve generated over $150 million,” he explained. “We paid the labels about $100 million over the last two years, specifically to artists, songwriters and content owners. Today we’re seeing 3.5 billion views per month. That’s about 42 billion views per year.”

If you’re calculating a per-view rate on today’s numbers, the average view turns out to earn $0.0012. 100,000 views averages $120.00, and 1 million views, $1,200.00. Granted, YouTube agreements do not propose calculating royalties on a per-view basis. However, for the purposes of this article, it is easy to see how royalties of $100 million spreads thin.

Perhaps the most important aspect of these proposals, as they unfold over the next few months, is that they set out to establish a framework of aqueducts hopeful to carry revenue from digital-age sources to claimants. Time will tell if substantial resources will ever flow.