PRS and YouTube Settle Their Differences

Finally, the PRS and YouTube have agreed a deal that ensures music videos will be back up on the site in the UK until 2012, following their licensing spat. (See my previous post for more details).  The only real surprise is that this took so long to happen.  It was patently in the interest of both parties to get the videos back up.

I’ve been asked a few times today who will be most happy with the deal. Given that both sides took very public, very strident positions in the debate, they were never going to make public details of a settlement.  By definition such an agreement would leave egg on the face of one or both parties.  But I would argue that YouTube needed this settling sooner rather than later.  In the age of Hulu and iPlayer, YouTube is no longer the same dynamic force of online video that it once was.  2 minute clips were the centre of the early days of online video, but full length TV shows are now the sweet spot.  YouTube is going through an identity crisis, where its core differentiated asset that it has left is music (and skateboarding dogs).   So music is more important to YouTube now than at any stage before.

And this makes YouTube highly important to the music industry.  Online music video consumption is now a core element of the digital music experience, and as an ends in itself rather than just as a discovery mechanism.  Which is what makes it ironic that the PRS could prevent the record labels utilizing the resource for a period of time.  Many people I have spoken to who are at companies that are outside the music industry are amazed that there can be such dysfunction on what should effectively be the same part of the equation.

The fact that YouTube got a single fee agreement rather than a fee per stream settlement is important.  This assigns YouTube a similar position as the BBC has in the UK.  In effect this is YouTube’s blanket license.  The downsides of this are:

• No opportunity for the PRS to participate in any significant upturn in Youtube music activity over the mid term.  Though the settlement will include calculations around future growth, any bet on future activity is a gamble.  The flip side of this of course is that PRS secures guaranteed revenue and (depending on the payment schedule) bank deposit interest revenue.
• The polarization of the streaming market.  Other on demand music providers will be wondering what it takes for them to get a blanket license rather than pay per stream.  Currently the likes of Spotify have the pain of every stream beinig cost to the bottom line.  The bigger their audience gets and the more they listen, the higher their costs.  YouTube is now partially immune to that dynamic (record label fees still need to be considered of course).  So does this set a precedent that if you’re big enough you get preferential treatment? And if so, what does that do to the dynamics of a competitive marketplace?