YouTube threatens to drop some indie artists

In announcing its new music streaming service, Google's YouTube says some big artists, including Adele, Vampire Weekend, and Radiohead, could be blocked from the site unless their independent record labels can strike a deal.

YouTube announced this week that it will be releasing a music-streaming business in the next few weeks, following Amazon's entry into the business and Apple's coming purchase of Beats, which has its own online streaming service. 

Music lovers normally applaud such moves, especially from Google-owned YouTube, the undisputed giant of online music streaming with 1 billion unique visitors a month.

However, YouTube also announced Tuesday that it will be dropping content from some independent music labels that do not sign a contract for its new music streaming service. Artists that could be dropped from the free YouTube site include Adele, The Arctic Monkeys, Vampire Weekend, and Radiohead, among others.

Even videos of other musicians playing covers of songs by a blocked artist could be taken down, YouTube said. New artists, who have no label, will not be affected. 

The dispute is over money. YouTube confirmed to the Monitor that it has signed contracts with 95 percent of the music labels it currently works with to stream their music on the new service. Some independent labels don’t want to sign because YouTube isn’t offering an advance to the label for the right to use their music.

"While we wish that we had 100% success rate, we understand that is not likely an achievable goal and therefore it is our responsibility to our users and the industry to launch the enhanced music experience," Robert Kyncl, YouTube’s head of content and business operations, told the Financial Times.

The new streaming service looks to improve the viewing experience for customers. The new features include the chance to watch videos without ads, the ability to cache videos to watch later offline, and the opportunity to listen to entire albums. 

One record label, which has already signed a deal, said in a memo obtained by Music Week that it liked the new arrangement. Believe Digital, a digital distributor and service provider for independent artists, said it got improved royalty rates for its clients and a significant increase in revenues from user-generated content. Believe Digital was not offered an advance. 

Other artists and labels are unhappy with the terms.

“Put simply, by refusing to engage with and listen to the concerns of the independent music sector YouTube is making a grave error of commercial judgment in misreading the market," Alison Wenham, chief executive of Worldwide Independent Network, which advocates for some labels, said in a statement. "We have tried and will continue to try to help YouTube understand just how important independent music is to any streaming service and why it should be valued accordingly.”

The labels are upset that they won’t be getting an advance for the music, and without an advance it is hard to tell how much money they could make, says Catherine Moore, director of the music business program at New York University’s Steinhardt School, in a telephone interview. “The rightsholders, as a middle man for the artist, have to be able to say that they got the best deal they can for the artist.” But it's better for the independent labels to cut a deal than for the artists they represent to have their music blocked by YouTube, she adds.

YouTube said it would continue negotiating with the labels in the hopes of reaching a deal.

All of this raises the question: Why would YouTube, the undisputed king of online music, want to change its business model? Could Google and YouTube have something big in store?