Music Industry Faces Untapped Payout Opportunity On YouTube
YouTube has piloted the success of major music acts including Ed Sheeran, Justin Bieber and The Weeknd. Still, musicians, labels and other rights holders continue to air grievances over the platform’s low return on ad-supported streams. Though last year the company reported paying out more than $2.2 billion in rights holder royalties from its ad business, with 67% of the amount directed at master rights holders, disparity exists between the platform’s profits and royalty payout, according to The Recording Academy.
Earlier this month YouTube launched 15-second audio ads and dynamic music lineups to increase ad revenue from music. Now the latest “State of the YouTube Music Economy 3.0” report by MIDiA Research says that it is time for the music industry to more fully empower itself on the platform.
“What really matters in the rights relationship between YouTube and rights holders is the commercial framework, MIDiA’s report author Mark Mulligan says in the report. “Rights holders simply want to get what they see as being a fairer rate for their music and after years of licensing frustration have turned to legislation to try to create a new rights framework that they hope will compel YouTube to license differently. The amount of revenue that YouTube pays the music industry is not the issue; instead, it is the price per stream.”
YouTube continues to lead the global music streaming market with 47% music weekly active user penetration while Spotify trails behind in second place with 29%. Though YouTube follows radio for music discovery, the platform outperforms others in terms of reach for creators and rights holders, with 1.2 billion music monthly active users of a total base of 2.1 billion in late 2019.
Despite a loss in overall share of revenue, music remains the leading source of profit for YouTube. Music also remains the largest single source of ad revenue since 2017 with music videos representing 32% of all views last year. At the same time, music is growing at a slower rate than other content genres on YouTube. While the platform’s ad revenue totaled $15.1 billion in 2019 including 26% music at $4 billion, this was a decrease from 35% in 2017.
Mulligan explains that the music industry is at an unusual pivot point. Future growth will predominately be driven by emerging markets, and being that revenue increases more slowly in emerging markets as compared to developed markets, he says there will be a disassociation between revenue and subscriber growth. While YouTube generates more ad revenue than Spotify–$40 billion versus $0.7 billion–the platform’s average revenue per user is lower than Spotify’s at $3.36 compared to $4.43.
“YouTube is the destination for music fans, though the music industry is an unusual spot.” says MIDiA’s report author Mark Mulligan. “We have a streaming market that is slowing in terms of subscriber numbers, so after this period of slowdown, YouTube might not be converting as many people to pay, but it is absolutely the one which is going to continue to broaden the overall audience of streaming.”
Still, the report suggests that if YouTube is optimized to its full potential, it could become the single largest digital income source for music rights holders, not including the additional value of audience engagement. Data shows that YouTube is a key ad-supported, premium, marketing and discovery asset for artists and labels. The service is the most widely-used music streaming app across all ages with weekly active usage the highest among users ages 16-19 at 70% penetration.
Past editions of MIDiA’s new report illustrated how content genres outside of music such as sports and gaming have improved monetization at a faster rate because they are better optimized for the YouTube ad economy. While that dynamic continues, Mulligan explains that YouTube monetization and user behavior have changed. The platform’s growth in subscriptions may have benefited rights holders, but other opportunities remain underutilized or untapped.
Artists must learn to better understand YouTube’s channels and subscribers, which are far different than those of Spotify, Mulligan says. From monetizing fandom to launching new subscriptions and music formats including multiple-song videos, the report highlights various strategic solutions for the music world to enjoy a better YouTube experience.
YouTube’s operations could change significantly as a result of how article 17 of the European Union (EU)’s Copyright Directive, which supports more balanced partnerships between creators and tech companies, is handled in the weeks ahead. Mulligan forecasts that if YouTube is forced to make a binary decision, it would likely back away from music, as the content is becoming less important to the platform’s economy than to its consumption.
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