Day the music died

On Tuesday, the music died for British viewers of YouTube. It was then that Google, YouTube’s strict parent, began blocking UK viewers from watching what they call “premium music videos” on the Internet’s most popular video platform. The reason, of course, was money. Google had been unable to cut a new licensing or royalties deal for YouTube content with the Performing Rights Society (PRS), the body that collects royalties for music artists. Both sides naturally went in PR spin overdrive after the decision – PRS finding Google’s decision “particularly disappointing”, while a Google spokesman claimed that PRS’s financial demands were so “prohibitive” that they would force YouTube to “lose significant amounts of money with every playback.”

British music fans shouldn’t feel especially persecuted. The same thing happened in America, late last December, when Google, claiming an inability to “reach acceptable business terms”, pulled down all Warner Music Group’s music videos from YouTube. It was a cruel pre-Christmas present for YouTube regulars with every Warner music video -- from the B-52’s to Jane’s Addiction – suddenly disappearing off the site.

So what is going on, why the sudden war between YouTube and the music business? The simple truth is that Google – which is under severe economic pressure from a decline in online advertising and from powerful new social media competitors like Facebook and Twitter -- is starting to play hardball with its new YouTube baton. It’s not surprising really. YouTube, which is now the fourth most trafficked website and second largest search engine on the Internet, control around 60% of the American online video market with music representing about 30% of its views and 47% of its most popular creators being musicians. But this massive traffic (estimated to be 5 billion total video views a month in the US) isn’t translating into advertising revenue with the site still only selling around 3% of its inventory.

Thus the nasty squabbling between Google and music business about royalty and license splits. As Lord Carter, the Minister for Communications, Technology and Broadcasting reported last week to a Commons Select Committee about the YouTube-PRS situation: “it is an example of how do you price and fund content in the digital world… We have had decades of content being funded in one way – via the license fee and advertising – and that model is changing at a rapid speed.”

If anything, Lord Carter might even be underestimating the seismic nature of the changes in the music business. Everything indeed is changing with the traditional labels, licensees, advertisers and retailers being replaced by a radically new ecosystem of musical artists, producers, distributors and consumers. And, to almost everyone’s surprise, it’s YouTube – a four year-old start-up founded by three Silicon Valley geeks who wanted a simple service to broadcast online videos of their friends and pets – which is increasingly becoming the decisive player in the music industry.

The music won’t die forever, of course, on YouTube. Google and PRS will do a deal. And Google will eventually ink strategic agreements with all four of the big labels too. But music on the Internet now has a different tune. Google is conducting things now with its new YouTube baton. And not everyone is going to like what they hear.