By Chris Castle
No Clothes for the Data Lord
Paul Resnikoff writing in Digital Music News reports on a Wall Street analyst research report that surfaced in Barrons that confirms YouTube’s inherent monopoly control even in the face of competition from a member of the GAAF cartel (Google, Amazon, Apple, Facebook).
These reports confirm what many in our business already know: YouTube is the quintessential long tail environment and is more dependent on hits than YouTube would like you to believe.
The reports also suggest two other potential inferences: YouTube has built its business on the backs of others through its manipulation of the DMCA “notice and shakedown” safe harbors. Its dependence on the safe harbor is inherently intertwined with the handful of licenses that permit a broad content offering that uses works of copyright, especially music. Irving Azoff has a succinct critique of this dependence in his open letter to YouTube published in Recode, and Maria Schneider articulated an excellent and widely read critique of YouTube on our Music Tech Policy blog.
The second inference is that these reports come at a critical moment in Google’s commercial life when reports say that Google is about to be fined over $3 billion by the European Commission for favoring its own products in search–which one would have to assume plausibly could include videos by “YouTube” stars that compete with all other music videos.
So while some might conclude that YouTube is commercially indifferent to losing a deal here and there with a label or publisher, what I think should be obvious is that YouTube’s broader video offering that YouTube clearly favors over professional music videos is dependent to a significant degree to the availability of music, I don’t think YouTube can afford to be indifferent to losing licenses.
Because the licenses are what gives YouTube cover from its out of control DMCA “notice and shakedown” practices. If a significant number of licenses for the hit end of the long tail went away, YouTube would be in an awkward position. As Maria Schneider suggests, the data lord has no clothes.
No Transparency At YouTube
Irving Azoff has also criticized YouTube’s lack of transparency and reliance on the DMCA to perfect its monopoly. The report from Bernstein Research (focused on a competitive threat to YouTube from Amazon Video) adds another voice to the chorus of complaints on Wall Street that YouTube operates in near secrecy:
One fellow who sees room for both Amazon and Google is Carlos Kirjner of Bernstein Research.
Kirjner yesterday reiterated an Outperform rating on shares of Amazon, while hiking his price target on the stock to $1,000 from $770.
But he also has an Outperform rating on Google shares, and a $900 price target, and this morning he takes a deep dive into YouTube attempting understand its massive scale.
Kirjner writes that “one day it [YouTube] will be as large if not larger than most, if not all legacy media companies, and it is playing a central role in the secular shift of brand advertising budgets to the Internet.”
The Bernstein folk could do well to read Mr. Azoff’s open letter–it might explain a few things about YouTube’s dominant position that is entirely dependent on its DMCA notice and shakedown policy that resulted in YouTube removing 180 million videos in 2014 alone.
We’ve seen this before–media consolidation. It’s called Clear Channel. No wonder Google has found a natural ally in the MIC Coalition alongside the likes of Clear Channel (now iHeart Media) and the National Association of Broadcasters in its quest to stop artist pay for radio play.
[Because Kirjner is convinced that YouTube is a media conglomerate of epic proportions] he’s preoccupied that, “Yet, we know ridiculously little about YouTube.”
Gee, I wonder why that is.
Because there’s no public data on YouTube, from Alphabet’s Google, Kirjner collected his own data set, including “details of nearly 10 million YouTube videos collected at different points in time.”
Paul Resnikoff on DMN points out that YouTube executive Christophe Mueller downplayed the importance of music to YouTube. (Christophe Mueller is lavishly credited in the astroturf Berklee/ICE/Berkman Center document titled “Fair Music” that was touted by Panos Panay at the MIC Coalition panel at SXSW this year.)
Paul contrasts Mueller’s statements (based on largely secret YouTube data) with the Bernstein extrapolations.
“For example, 1% of YouTube videos correspond to 93% of views since inception; 94% of viewing time (since inception) is also concentrated in about 1% of the videos in the library.”
That conclusion was based on a sample of about 10 million videos, which yielded other gems like where music falls into the hierarchy. “There is also concentration across genres,” Kirjner continued. “People and Blogs, followed by Music, Gaming and Entertainment are the genres with the largest number of videos since inception in the YouTube library… and together they make up 67% of the total videos in the library.”
YouTube: Music Is Tiny.
That sharply contrasts with statements from YouTube, which recently indicated that music was a trivial and unimportant contributor to overall viewing traffic. In a statement issued in late April, Head of YouTube International Music Partnerships Christophe Muller claimed that viewers spend a relatively tiny amount of time viewing music-related content. “The final claim that the industry makes is that music is core to our popularity,” Muller blogged. “Despite the billions of views music generates, the average YouTube user spends just one hour watching music on YouTube a month. Compare that to the 55 hours a month the average Spotify subscriber consumes.”
That figure, if believed, would mean that music-related videos account for roughly 2.5% of overall viewing, a figure the music industry dismissed as ridiculous spin.
The Bernstein analyst concluded:
Kirjner asks if, given such concentration, there’s a risk to Google of some of the large content providers “defecting” to another platform.
He concludes YouTube can probably avoid that:
We conclude that it makes perfect sense for Google to invest and/or incent some of its largest and most successful creators, channels and networks to retain them, but, despite a high degree of relative concentration, YouTube’s scale protects Google and limits the value of any single content creator, channel or multichannel network operator.
And despite the threat of Facebook (FB) supplanting YouTube, he thinks YouTube will prevail as “the leading online video consumption platform.
In other words, a monopoly based on the DMCA safe harbor that Google can use to favor cooperative “YouTubers” in search results (YouTube is the 2nd largest search platform in the world).
Who’s Bluffing Whom?
It is well to remember that YouTube is in the middle of renegotiating its agreements with many music companies right now. There are some people who think that YouTube can continue to steamroll over artists as Google is accustomed to steamrolling over everyone who gets in their way.
I think that argument falls short of the full analysis. Google is facing European investigations and billion dollar fines for as far as the eye can see–for abusing their monopoly or at least dominant position. While Google’s control over the Obama Administration is well known, there is a limit to what even the President can tolerate, especially during an election year.
Politico reports that the Federal Trade Commission is considering reopening some antitrust investigation into Google at the request of another US company (which is unlikely to be Microsoft as the ever Googlely Jeff John Roberts assures us).
YouTube is just another multinational media conglomerate with one exception–that very dominant market power that allows it to favor the videos of YouTubers in whom it has a vested interest. While America has a history of media consolidation within the boundaries of the United States, we are now well on our way to having one company roll up a dominant position in the video information that flows to consumers around the globe.
As Mr. Azoff said:
You [at YouTube] say that music matters to YouTube. There is an old adage about actions and words. If YouTube valued music, then it would allow artists to have the same control which YouTube grants to itself. YouTube has created original programming. Those programs sit behind a “paid wall” and are not accessible for free unless YouTube decides to make them available that way. If a fan wants to watch the YouTube series “Sister-Zoned,” that fan has to subscribe to YouTube Red for $9.99 a month. But the same does not apply to music.
And it all depends on raw market power and especially on the DMCA.
As James Madison wrote in Federalist 44:
“[Government] interference is but the first link of a long chain of repetitions, every subsequent interference being naturally produced by the effects of the preceding.”