The MBW Review offers our take on some of the music biz’s biggest recent goings-on. This time, we crunch the numbers just served up by YouTube CEO Susan Wojcicki. The MBW Review is supported by Instrumental.
Do you remember when the music industry was clawing at YouTube’s throat? C’mon; it hasn’t been that long.
Three years ago, for example, then-RIAA boss Cary Sherman was claiming: “It makes no sense that it takes a thousand on-demand streams of a song for creators to earn $1 on YouTube, while services like Apple and Spotify pay creators $7 or more for those same streams.”
More recently, of course, there’s been the battle over Article 13 (now 17) in Europe – the legislation aiming to make digital services legally responsible for copyright infringement on their platforms.
Having slammed YouTube for its supposed “carpet-bombing propaganda” ahead of the vote on Article 13 (and the Copyright Directive) by European lawmakers, a raft of music biz orgs brought out the bunting when, in April last year, the European Council gave the bill the green light.
Now, thanks to Brexit, UK politicians now say Article 13/17 won’t actually be adopted in Britain after all. (*Lyor Cohen turns to camera, arches eyebrow, whispers: “C’est la vie.” Run credits.*)
Throughout these skirmishes, YouTube has maintained that it is, in fact, furnishing music rightsholders with a healthy amount of dollar.
In 2017, in a clear broadside against Spotify, Cohen – YouTube’s global Head of Music – said: “At over $3 per thousand streams in the U.S., YouTube is paying out more than other ad-supported services. Why doesn’t anyone know that? Because YouTube is global and the numbers get diluted by lower contributions in developing markets.”
Then, in September 2018, YouTube claimed that it had paid out some $1.8 billion to music rightsholders in advertising revenues in the prior 12 months – and that it had handed over more than $6bn to the music biz to date.
(Confusingly, global record industry body IFPI claims that worldwide record label income from video streaming platforms – including YouTube and Vevo – stood at $998.8m in 2018; that’s a lot smaller than $1.8bn, although the IFPI figure doesn’t include publishing revenue or money received by independent artists.)
Now, for the first time in a while, YouTube has put a new figure on what it says it’s paying the music industry.
According to a blog from YouTube CEO Susan Wojcicki published Friday (February 14), YouTube handed music rightsholders over $3bn from ads and subscriptions combined in the 12 calendar months of 2019.
Wojcicki claims that YouTube is successfully partnering with the music biz to “grow revenue, break new artists and promote music”.
She writes: “YouTube offers twin engines for revenue with advertising and subscribers, paying out more than $3 billion to the music industry last year from ads and subscriptions.
“YouTube offers twin engines for revenue with advertising and subscribers, paying out more than $3 billion to the music industry last year from ads and subscriptions.”
Susan Wojcicki, YouTube
“We’re also partnering with artists to support and amplify their work through every phase of their career.”
YouTube further claims, within a flattering new Billboard feature, that it has paid out over $12bn to the music industry in total to date.
(This $12m is a confusing figure. YouTube claimed in a ‘How Google Fights Piracy’ report, published November 2018, that it had paid over $6bn to the music industry in lifetime ad revenues; it now says it paid $3bn to the music industry in 2019, taking that $6bn running total up to $9bn. There’s $3bn missing vs. the $12bn stat here, no? We therefore have to assume the missing $3bn must be the cash YouTube believes it paid the industry in subscription/non-advertising revenues prior to 2019.)
Interestingly, Google/Alphabet recently revealed that YouTube generated $15.15bn in advertising revenues last year – a number which didn’t include any subscription revenues. It also confirmed that YouTube now has over 20 million paying subscribers across YouTube Music and YouTube Premium (a package which includes premium access to YouTube Music).
There are a few ways to break down YouTube’s $3bn-in-2019 music payout stat.
The first, obvious one, is that it equates to around 20% of the advertising money YouTube generated last year across its service (although this is not apples-to-apples, as the $3bn figure includes subscription money and the $15.15bn does not).
The second is to look back at YouTube’s year-on-year progress in terms of what it pays the music business annually.
The increase from 2018 (to end of Sept) to 2019 there is $1.2bn, or 66.7% – though the 2019 number has subscription added in whereas the prior year’s stat is for advertising only.
(Also bear in mind that YT’s true music biz payout figure for calendar 2018, to end of December, was probably slightly higher than the one it publicly confirmed for the 12 months to end of September that year.)
The increase in YouTube’s stated total annual advertising revenues between these two years (2018 to 2019) was $4bn, or 35.8%.
Another interesting angle on YouTube’s payouts is to compare them to what we know about other leading music streaming services worldwide.
Let’s start with Spotify. According to its annual fiscal report, Spotify’s revenues stood at €6.76bn ($7.60bn) in 2019, up on €5.26bn ($6.24bn) from 2018.
Major record labels’ current deals with Spotify are believed to include a 52% royalty rate for their music, but this doesn’t include money paid out to publishing rightsholders. That’s a trickier calculation, but believed to roughly come out at a 13% rate, i.e. Spotify paying out approximately 65% of net revenue to music rightsholders in total.
(Although Spotify publishes a ‘Cost of Revenues’ line in its financials – mainly made up of its payouts to rightsholders – this number also includes additive costs such as credit card and payment processing fees, plus certain employee compensation.)
Let’s press on with our estimate: 65% of Spotify’s revenues in 2019 would have resulted in an annual music industry/rightsholder payout of $4.94bn, nearly two billion dollars bigger than YouTube’s equivalent.
According to Susan Wojcicki, YouTube ended 2019 with more than 2bn monthly users around the world; over at Spotify, we know this number was 271m.
Per-head, then, your average YouTube user, across advertising and subscriptions, was worth approximately $1.50 for music rightsholders in 2019; your average Spotify user, again across advertising and subscriptions, chimed in with an estimated $18.23 – although of course many of YouTube’s 2bn users may not have necessarily accessed any music via the service.
That said, you’d assume, judging by its 2018 numbers, that YouTube paid out in excess of $2bn in advertising revenues to the music industry in 2019.
Spotify’s total advertising revenues last year, meanwhile, didn’t even break a billion dollars, at €678m ($761m).
Perhaps a more interesting question: did YouTube pay music rightsholders more in 2019 than the world’s second biggest music subscription service, Apple Music?
Big, fat caveat – having a go at answering this question requires us to make a couple of broad logical assumptions that may or may not be accurate.
But the answer is… possibly.
Apple Music announced in June 2019 that it had over 60m global subscribers (the platform does not run any advertising). That was up by 10m on the 50m number the service confirmed 13 months prior. These numbers included Apple’s free trialists.
Let’s take the average per-month increase there (+769k) and assume that, by the end of 2019, Apple Music had grown to somewhere in the region of 65m subs (again, including free trialists).
It’s widely assumed that, due to a number of factors, Apple’s premium ARPU (i.e. the amount of money paid by its average subscriber) is slightly higher than Spotify’s worldwide. Yet we know Spotify’s exact premium ARPU in Q4 2019, because it disclosed it in its latest quarterly results: it was officially €4.65 ($5.16).
So: if Apple Music’s subscriber figure was circa 65m at the close of 2019, and all of those subs were paying in the region of $5.16 per month, it would mean that, on a 12 monthly basis, Apple Music would have generated $4.02bn. (Reminder: this number is probably generous to Apple, considering that in June last year, its actual subscriber count was 60m, rather than the 65m we’re assuming it had at year-end.)
If the music business received 65% of this $4.02bn number, Apple would have paid out $2.6bn last year; if rightsholders got 70%, Apple would have paid $2.81bn.
Not that you need reminding, but YouTube says it paid out “more than $3 billion to the music industry last year from ads and subscriptions”.
The small print: Apple Music’s true subs figure at the close of 2019 could be higher than the 65m we’ve estimated; and even with free triallists included, its premium ARPU figure might be significantly bigger than Spotify’s. (Although, for example, Apple Music costs around $1.43 a month in India – showing how Apple’s global commercial proposition will pull down its average monthly price worldwide).
However you look at it, in terms of who is paying the music business more between Apple Music and YouTube right now, it’s a close-run thing.
And, on balance, YouTube looks reasonably likely to have just become the global music industry’s second biggest digital partner.
The MBW Review is supported by Instrumental, which powers online scouting for A&R and talent teams within the music industry. Their leading scouting platform applies AI processes to Spotify and social data to unearth the fastest growing artists and tracks each day. Get in touch with the Instrumental team to find out how they can help power your scouting efforts.Music Business Worldwide