With the option to stream millions of tracks for a monthly fee, subscription services such as Spotify and Apple Music have proven to be a serious competitor to music piracy.

In just a matter of years, these services have shaken up the music business to become the biggest source of revenue.

UK Parliament Reviews Music Streaming Economy

This sounds like great news, but many musicians are not happy. Many creators only see a tiny fraction of the streaming income, with much bigger percentages going to the labels. This topic, which is far from new, is now at the center of a UK Parliamentary inquiry on the economics of music streaming.

After listening to hours of testimony it’s clear that the streaming landscape is complicated. There are various copyright holders involved and, for the artist, revenue can be severely limited depending on their contract.

Another confusing matter is how money is shared among the various acts. This largely depends on the subscription income received by companies such as Spotify. In other words, more streamed ‘listens’ don’t automatically result in more revenue.

These and many related topics were discussed in a UK parliament hearing over the past weeks where several prominent witnesses testified. They includes Geoff Taylor, Chief Executive of the music industry group BPI.

Among other things, Taylor was asked why a company such as Spotify, in which several record labels have a stake, pays so little per stream. This can be in part explained by the subscription revenues, which remain relatively low. The easy solution would be to raise prices, but that’s not as easy as it sounds.

‘YouTube Distorts Subscription Prices’

“There are various distortions in the market that have essentially reduced the amount of value that comes into the streaming economy. The first one is that, obviously, the consumer price has not moved in 10 years and has fallen behind inflation, but there are reasons behind that,” Taylor said.

“The most important reason is competition with free services. You have services such as YouTube in the market that have huge numbers of users, which, for a lot of their content — all the content that is uploaded by their users — pay a fraction of what is paid for a stream on Spotify.”

In other words, because people can stream music for free on YouTube, paid subscription services are reluctant to raise their prices. If they do, people may simply switch to this free alternative which generates less revenue.

Piracy and the Safe Harbor Problem

According to Taylor, there is a huge difference in the money earned ‘per stream’ from subscription services when compared to user-uploaded YouTube videos. In addition, pirate sites remain a problem too, and these generate no income at all.

“Then of course the other big distortion in the market is piracy, which affects all artists, all labels and so forth. That costs about £200 million a year in lost revenues,” Talor notes.

According to the BPI’s Chief Executive, safe harbors are causing this distortion. They allow companies such as YouTube to host music uploaded without permission, without being held liable.

“The existence of the safe harbor changes the negotiation substantially. That is why you see that huge differential in per stream rates between user-uploaded content on YouTube, for example, and other streaming services.”

In other words, Spotify and other subscription services are afraid to raise prices because they fear that people will flee to free alternatives such as YouTube and pirate sites, which will decrease the overall revenue.

Spotify and Apple Agree

This is not just how the BPI sees it either. In yesterday’s hearing Spotify’s Chief Legal Officer Horacio Gutierrez warned that the company has to strike a balance and ensure that “music doesn’t become unaffordable.” If that happens, Spotify could be “pushing them back into online piracy scenarios.”

This was corroborated by Apple Music’s Elena Sega, BBC reports. She also highlighted YouTube as one of the outlets they have to compete with.

“Competing with free is very difficult,” she said. “They don’t necessarily have licenses for all the music that they use, and they don’t need to.”

These testimonies make it clear that YouTube is mostly seen as a problem by these insiders. While the platform has paid out billions of dollars to the music industry over the years, the payouts should be a lot higher, the reasoning goes.

Labels Still Upload Their Music to YouTube

This is an argument that has come up before. Unfortunately, however, the UK parliament members didn’t ask why the major record labels continue to upload their music to the site. If YouTube is such a problem, why use it then?

Low payouts are not the only problem either, according to insiders. YouTube is also seen as the biggest source for stream-ripping, which is the music industry’s single biggest piracy threat. Many of the tracks that are ripped are uploaded by the labels themselves.

The easy solution would be to stop uploading to YouTube altogether and load the Content-ID system with every music track on earth, so all user uploads are removed as well. But that’s not happening.

This suggests that the music industry sees at least some value in YouTube. After all, why else would it support a site that keeps subscription service revenues low? The main issue here is that the music industry would like to get more money from YouTube.

‘Labels Should Take a Look at Their Own Business’

The Members of Parliament also questioned Katherine Oyama, Google’s Global Head IP Policy, who had an entirely different take on the matter.

“Honestly, I was surprised and a bit disappointed by the testimony that I heard. Frankly, it does not reflect at all the individual relationships that we have with individual members of the BPI,” she said.

Oyama reiterated that YouTube is paying billions of dollars to the music industry and that they are working hard to raise this revenue. At the same time, the company has built tools to allow copyright holders to remove infringing content from the platform.

Instead of pointing the finger at YouTube, the major labels may want to take an honest look at their own business, indirectly hinting at the fact that some artists only get paid a fraction of streaming revenues.

“I think maybe what was happening in the first panel today was a little bit of a distraction to alleviate hard questions about their own industry, frankly. It is true that not every artist is having the same experience.

“I do think that there has been a lack, maybe, of some other voices as part of this process. We would be so happy to recommend some who can share some best practices about things that they are doing,” Oyama added.