How the record labels spurned the YouTube opportunity

YouTube radically simplified video hosting

YouTube popped up out of nowhere half a decade ago as a source of easy video hosting and sharing. And while it may still be widely used for amateur and personal videos, it's also a major source of music videos. A recent report by tracking firm Visible Measures found that nine out of the ten most "viral" videos in 2009 were music-related (the one exception was a film trailer). As such, music videos have been a tremendous vehicle for promoting acts. Yet many in the music business seem to have received the wrong message.

With music videos being so popular, one of Google's first moves following the purchase of YouTube was to shore up deals with all four major record labels, giving them a cut of revenue for streaming videos that included their music. There was no direct legal reason to do so, especially in the United States, where the "safe harbor" rules of the DMCA make it clear that any copyright liability would fall on those who uploaded the video, not the hosting firm. However, it avoided a potential lawsuit (since then, a similar lawsuit involving Universal Music and video hosting site Veoh has shown that the safe harbors do, in fact, protect the site).



However, the major record labels tend not to remain pleased for long, and if someone else is making any money at all, they tend to feel that they must be losing some. When it came time to renegotiate the deal, Warner Music tried to force Google to pay significantly more per stream. It's still not entirely clear who initiated the next step, but the end result was that all Warner Music videos on YouTube disappeared. A few months later, in the UK, a similar dispute between Google and music collection society PRS resulted in Google blocking access to major label music videos there too. In both cases, the industry wanted to get paid a very high rate per stream, despite the fact that these videos where helping to drive a lot of attention for these artists, that could directly result in much greater revenue. Not only that, but they were providing a working platform for hosting and sharing videos - free.

Before YouTube, hosting your own videos was a complex and expensive process. You often had to set up your own (expensive) media server, and users had to install proprietary software like RealNetworks' media player. On top of that, you had to pay a ton of money for bandwidth on every stream. YouTube gave all that away and made the user experience significantly better. It's not hard to make the argument that the music industry should have been thrilled with the free service that Google/YouTube provided.

Many artists certainly understood this. Lots of musicians, big and small, already included YouTube videos on their official sites, and when the videos got pulled from YouTube, they were left scrambling to explain why the videos on their own websites were broken. Singer Amanda Palmer demanded publicly that Warner Music drop her from her contract. She encouraged fans to record her live at shows and to put those videos up on YouTube. A favorite song? One where she sang about how much she disliked Warner Music, and why the label should drop her.

Meanwhile, those artists who remained on YouTube quickly realized that there was a tremendous advantage to having videos there, even if Google wasn't paying them directly. Blues singer Joe Bonamassa said that the fact that his music was available for free on YouTube increased attendance at his shows by a factor of ten. People in the cities and towns where he was playing would share his videos, and that made them much more interested in attending his shows. It had a direct and clear impact on his own income.

All of that should have been clear to folks at Warner Music or PRS, but instead, fear ruled the day. Their biggest fear was creating another MTV. When MTV first came about, it, like YouTube, was a great way to promote musicians. Back when MTV still showed music videos it helped many people learn about new bands, buy their albums and go to their shows. But the record labels got jealous that MTV was making all this money off their content. They failed to realise that they, too, were making lots of money in making their own acts more popular. In the world of record label execs, this wasn't a fair deal. Anyone promoting their content must pay. So, the stance taken towards YouTube has been one of less promotion and less money, even as smarter musicians are benefiting from the free hosting and free software.

The end result, unfortunately, has been that almost everyone loses. Musicians get less exposure. YouTube gets less usage. Fans are left in the dark (or hunting around on less reputable sites for music videos). YouTube was a huge opportunity for the record labels, and they spent years messing it up