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Penny Fractions: The Record Industry vs. YouTube: The Early Years

Hi everyone! There won’t be a newsletter next week because my birthday is on March 26th and I figured
Penny Fractions
Penny Fractions: The Record Industry vs. YouTube: The Early Years
By David Turner • Issue #79 • View online
Hi everyone! There won’t be a newsletter next week because my birthday is on March 26th and I figured it’d be a nice time to take a week off. I’ll still be posting Patreon content, so if you want a sneak peek at April’s newsletters or an immediate reaction to Apple’s upcoming streaming announcement, check out the Patreon. I also wanted to say that if you enjoy the newsletter and don’t wanna contribute to the Patreon, simply recommending it to a friend, co-worker, or your grocery store cashier is all that I ask. Otherwise, let’s get into the early days of beef between YouTube and major labels.

This week I wanted to take a step back and look at the early days of YouTube and how the video sharing site became the world’s largest music streaming platform. An entire book could be written on this topic, so I centered on two moments: Major labels’ initial embrace of YouTube and Universal Music Group’s brief squabble with the platform in 2007. Both moments remain relevant to many contemporary music streaming issues, which (surprise!) haven’t changed all that much over the last decade with labels wanting more money, artists asking for more money, and billion-dollar tech companies seemingly unable to meet those demands. This will be old news for some, but I know for others it’ll be a light reminder of an internet before YouTube was the default noun for online video.
Record Labels vs. YouTube: Round 1
YouTube, founded in 2005 by former PayPal employees, arrived when video streaming on the internet was splintered in many proprietary platforms depending on what site you visited. I want to stress upfront just how much in the mid-2000s the ability to watch video on the internet wasn’t new or novel, but such activities happened across various players and websites. Myspace and Google had its own video players, and so did many media companies, and while many were buggy garbage, by the mid-2000s there was clearly a growing market with the rise of broadband internet particularly in the United States. Even with all of this competition, YouTube, by early 2006, started to pull away and succeed with virals hits by OK Go (“Here It Goes Again”) and the Saturday Night Live clip of “Lazy Sunday”, which sparked its own rather public drama between NBCUniversal and the emerging video platform.
Those early successes pushed YouTube to engage in talks with major television networks and record labels within a year. No matter the inane press bias towards technology companies being forward thinking and old media being trapped in the past, these massive multinational companies always kept an eye on the pulse of where its audience might go. If young people are going to be consuming online video, then you best believe major networks are going to try to control this new platform. Thus, before many ground rules could be set about what a platform like YouTube could mean for an amateur creator, major entertainment companies were already setting up the new rules.
YouTube’s relationship to music started immediately, as articles kept citing the fact that endless unofficially uploaded music videos dominated the platform. This back-and-forth defined the initial 18-24 months of the still-growing video company. There was concern about YouTube’s lack of business model, so any copyrighted content on the service typically wasn’t approved in those early days. But for copyright holders, the bigger issue was that they weren’t making any money from it. The early irony of record labels is that while it’s reasonable to question the misuse of one’s work, the solution was simply to monetize, through advertising, what were originally advertisements that morphed into another method of squeezing dollars out of promotional material. An August 2006 Mashable story highlights a contradiction that existed within the role of music videos in the 2000s music ecosystem:
There’s much buzz about YouTube’s announcement this week that it plans to host “every music video ever created” within 18 months. Warner Music Group and EMI are involved in the talks. The videos will be free, which makes absolute sense - why does iTunes charge you to watch promotional material?
(Again, this could be a whole other newsletter but I wanted to make a quick side note here. What is oddly overlooked in comments like the one above is that record labels effectively figured out a way to monetize music videos by the mid-2000s. Artist music video compilations existed throughout the 1990s and in the 2000s there were CD/DVD combos that jacked up the retail price for the privilege of watching music videos on demand. The record industry didn’t suddenly want a new way to make money off of videos from YouTube; no, the record labels wanted to sustain the money that was being wrung out of promotional material.)
Ultimately, YouTube did start to build up deals with different major labels. The first deal was struck with Warner Music Group in September 2006, then Universal Music Group and Sony Music followed in October of that year. That same week it was reported that Google would be buying YouTube for $1.65 billion, which would ultimately net the major labels’ $50 million after the sale, according to the New York Times. What’s funny to me is just how high the tension between YouTube and the major labels appeared to be, even after such a deal. Earlier this year, I wrote about how the failure to constrain piracy with early subscription models birthed the dual paths of advertising-based streaming and the still-growing iTunes music store. When describing the deal, the Times wrote:
Indeed, the companies’ deals with YouTube call for them to share revenue from ads that will run alongside their music videos. As part of the deal, YouTube will use new technology to identify copyrighted material that users have uploaded to the site without permission.
The trade-off for getting major label content on the platform wasn’t only monetary, but also effectively creating a surveillance state on the platform purely toward copyrighted material. I bring this up because while this is one of the core aspects of YouTube in the 2010s, I find it hard to imagine the company existing without this assurance towards major labels and international copyright holders. Still, such a truce between ultimately competitive companies wouldn’t last long.
When Labels Decided Not to Play Nice
A year after these initial deals were signed, Universal Music Group was the first one to survey this new landscape and desire for change. Stephen Witt’s How Music Got Free retells how former Universal Music Group CEO Doug Morris was hanging out with his grandson, saw all of the music videos offered on YouTube and wanted to know why his label wasn’t making more money off these works. He quickly took drastic actions to attempt to funnel more money into the label’s pockets:
He ordered Horowitz to draft an ultimatum to all major websites: give us eight-tenths of a cent every time you play one of our videos, or we pull everything. By the end of 2007, thousands upon thousands of videos on YouTube went dark, and every artist in Universal’s roster disappeared from the major video hosting sites.
Even artists who were no longer on Universal felt the effects of this conflict between billion-dollar companies. Trent Reznor was forced to offer an explanation to his fans about why Universal wanted to pull down the remixes that he was encouraging to be made for his 2007 album Year Zero. The issue was that Universal wanted YouTube and Myspace to alert them of any copyrighted material being posted, and so by sanctioning these remixes, their court case would potentially be undermined. So I wanted to quote a little bit of Reznor’s fan message, which I think captures just how different a place internet streaming was only ten years ago:
While I am profoundly perturbed with this stance as content owners continue to stifle all innovation in the face of the digital revolution, it is consistent with what they have done in the past. So… we are challenged at the last second to find a way of bringing this idea to life without getting splashed by the urine as these media companies piss all over each other’s feet.
Witt writes that Universal and YouTube eventually agreed to a deal that wound up with a “better” deal for his record label. This story was repeated a year later when Warner Music Group pulled their music from YouTube for over half a year after failed talks around licensing. A decade later, now with record labels making so much of their money from music streaming, it’s hard to imagine an entire catalog being pulled from a platform.
Yet, when one looks at the current legal battle between Warner Music Group and Spotify in India, it’s hard not to see history repeating itself a bit. The core issue still hasn’t changed, which is that record labels (or in Spotify/Warner’s case, publishers) don’t see themselves being fairly compensated for correctly realizing that these streaming platforms wouldn’t have much of a leg to stand on without their content. Still, the issue I’ll raise, which also hasn’t changed much at all, is that a lot of this bickering is happening among corporate executives.
That leaves many of the concerns of average musicians, like YouTube’s Content ID system (something ultimately built to appease massive entertainment companies, not individual artists) or the meager YouTube monetary payouts, to end up entirely lost in the public conversation. Back in 2002, the New York Times reported that artists complained about post-Napster major label-approved music platforms like Pressplay and MusicNet because they felt under-compensated for their work within a new digital system they never agreed to participate in. This tension gets lost when the conflict centers on billion-dollar companies fighting over a now increasing monetary pie. Therefore, artists who are creating the content for both platforms and labels can hope for better business practices but fully understand that regardless of which tech company “wins”, these squabbles will rarely trickle down to help artists.
Patreon Note
Kurt Woerpel, who did the Penny Fractions cover banner, made artwork for the Patreon page’s subscription tiers, which I wanted to share. This is partly to plug the Patreon again, but also to give a big shout to Kurt, whose work continues to define the Penny Fractions visual aesthetic.
6 Links 2 Read
Yes, music streaming in its current form is far too cheap and the lie of it providing any meaningful sustainable career path for most musicians is increasingly difficult to sustain. However, I do love Mulligan comparing Spotify’s 2019 price of $9.99 vs. Spotify’s 2009 $9.99 for the same product, but never mentions how the Universal and Sony Music backed Pressplay streaming service launched in 2001, also at $9.95 a month. I say this, because what is now a business problem for Spotify, obscures how this model was always precarious for artists from the jump.
Extremely dark headline for what would be a rather bleak outcome for the broader music industry, if a tech giant just decided to own one of the largest holders of recorded music. Seems bad.
What’s so frustrating about Spotify calling out Apple’s terrible App store policies is that centering this discussion between two billion-dollar companies will surely only result in an outcome that still leaves all those apps at the bottom, forgotten.
The issues of contemporary music video directors deserve far more time than I can provide right now. However, this article, to me, is a solid primer on music video director life and the fairly exploitative practices that dominate this sector of the industry.
I love discovering that earth-exploiting, anti-union billion-dollar corporations compensate artists in free swag for community events.
I wanted to give a shout out to the staff at Gimlet, who just unionized at the Writers Guild of America East, which is home to my former employer Gizmodo Media Group. This drive happening post-Spotify purchase could push new bounds in tech organizing now that one of the major newer players in tech just bought a newly unionized shop for over $200 million. Can’t wait to hear this future episode of StartUp. Also, Kickstarter announced a union with the Office and Professional Employees International Union, sweet times for tech organizing it would seem.
The Penny Fractions newsletter arrives every Wednesday morning (EST). If you’d like to support it, check out the Patreon page. The artwork is by graphic designer Kurt Woerpel whose work can be found here. The newsletter is copy edited by Mariana Carvalho. My personal website is davidturner.work. Any comments or concerns can be sent to pennyfractions@gmail.com.


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