YouTube vs. WMG: The Challenges Faced with User-Generated Content

The evolution of a new business model which centers on the need for user-created content has brought with it many tough questions regarding the issues of licensing and copyright. With the use of expressive material on websites such as YouTube whom rely solely on third party contribution, the issues of authorization and “fair use” are among the most pressing but vague problems facing these new business platforms. The complexity of copyright law can be seen by looking at the mere number of infringement cases prevalent today. This case intends to discuss just how YouTube and recording industry giant Warner Music Group are operating in a digital age.

With album sales declining and online piracy rates biting into profits, major record labels are forming arrangement deals with platforms such as YouTube to help pick up the pieces. Everything was all and well as YouTube partnered with the first of the big four record labels, Warner Music Group, about two years ago. Now that the licensing contract has ended, users who are uploading material onto the site are finding that their rendition of the day’s top jam is being cut short by those holding the rights to the content. “Whether YouTube bailed or Warner Music punted-but the material fact is the same. From Bad Company to the B-52’s, James Blunt to Jane’s Addiction, the videos are down. The reason is simple: money” (Gilbert). The answer is not perfectly clear as to exactly how high profits are extracted from the explosive growth audience of YouTube. What is known through knowledge on web business models is that YouTube can act as an affiliate, were they pay royalties to WMG for each license or on a “pay per click” basis where each video view is seen as a revenue stream for the content provider. YouTube can also pay out some of its ad revenue to WMG to keep them satisfied enough to allow the content to remain active for the users. Under prior terms it’s reported that Warner received either a fraction of a cent per video play or a share of any ad revenue generated alongside their content, whichever was greater (Gilbert). Music videos are among the most watched content on the site from a multitude of content providers. Despite this fact, when WMG evaluated its total digital revenue less than one percent came from YouTube. (Gilbert). The unfortunate lack of negotiation between the parties is sure to have an impact on the value proposition of this pure play in the eyes of the consumer.

I recently uploaded a video onto YouTube. It is not a complete original as I have added some Fifty “50” Cent to the montage of pictures I took of me and my friend while partying over the weekend. A week later YouTube has sent me an email notice telling me that my content has been disabled, prompting me to take further action. In a statement from YouTube, “we try and give people options when they receive a copyright claim. Instead of automatically blocking videos, we give uploaders the choice to dispute the claim (fair use), use our AudioSwap tool to replace the track with one from our library of pre-cleared music, or leave the video as is with no sound” (Sandoval 2). After checking out the section of the YouTube Blog entitled “The Ups and Downs of Music Licensing for YouTube,” I am now satisfied knowing that I can use the AudioSwap library tool to find a cleared song. I am sure the one I choose is equal if not better than the original track I had used. If you sense any sarcasm in the tone of this last statement than you probably know where I am going with this. I will spare you the rhetorical questions that ask why and how exactly my needs are being fulfilled as a potential user having to go through the hassle of attempting to make the content I upload my own. A statement made by YouTube in their blog has an almost mission statement feel: “YouTube: a system that gives artists a brand new revenue source and a great way to connect with their fans.” Personally I feel as though if an artist wanted to connect with a user who is trying to use their song in a clip they have created for the platform, they should not let an agent such as Warner Music tarnish their reputation and make many customers of YouTube unhappy with copyright claims.

What is interesting in this case unlike the struggles YouTube has had with the high-profile case involving Viacom or ordinary user piracy is that there was an actual license agreement between the host of the content and WMG. In this situation, YouTube fans used Warner Music’s songs for two years with the label’s blessing (Sandoval 1). When one is in doubt on whether they have exercised their right to fair use properly, it is always wise to get permission (license) from the provider. In the case of WMG, this rule does not clearly apply since there was a contract in effect. The resulting confusion from fans across the net is evidence that yes, there is a problem, and a resolution needs to be made to sustain satisfaction among the growing number of users on YouTube. There are many examples of upset consumers having the audio silenced on their videos. Frank Stallone, a 41-year-old DJ had received notice of infringement and noted simply, “I don’t understand who I’m harming. If anything, people are hearing the 45 second tease they haven’t heard in a while and they’ll want to go out and buy the song” (Sandoval 2). Being able to sympathize with the confusion many members are facing, you really get a sense of how the profit motive of two companies can impact the exchange process and business model as a whole.

Fair use in itself seems to hold very little appeal after examining a case such as this. As put by attorney Ivan Hoffman, “the standards used for determining fair use only come into play when there is a litigation since fair use is a defense to a claim of infringement. Therefore, any reliance upon the doctrine before such determination is made seems a false and unwise reliance.” If you were to think of all the media available for a marketing exchange to take place, it is almost overwhelming how many potential copyright claims there could be especially knowing that the fair use doctrine is so ambiguous. Conducting business in an environment where there are constant claims of expressive work infringement seriously takes away from the experience of the digital marketplace. The bottom line is that Warner Music will not be making any money while they are off the site nor will YouTube be able to retain consumers who will seek out a competitor who provides them with the content they desire. Content needs distribution as distribution needs content (Gilbert). It is going to be interesting to see how social networks and user-generated content sites try to generate revenue while still providing value and loyalty to the consumer.

References -

Gilbert, Seth - http://seekingalpha.com/article/112563-warner-music-group-and-youtube-are-not-hearing-the-same-tune

Sandoval, Greg - http://news.cnet.com/8301-1023_3-10150588-93.html