Ad-Rates, Algorithms, and YouTube's Future in Music
8 min read

Ad-Rates, Algorithms, and YouTube's Future in Music

Hello, I’m starting off this week like last week, which is to say life’s been kind of a mess, but doing this newsletter remains a joy and welcome to a number of new readers. I wold also like to say last week’s newsletter felt a bit scattered, so feel free—some of y’all already did—to call me on my bullshit. Anyway, let’s talk about YouTube’s decade long fraught relationship with the music industry.

Did you know that YouTube Red, the subscription service offered by YouTube, is a music service? I don’t think anyone quite did until Susan Wojcicki, YouTube’s CEO, said exactly that a couple weeks ago during Recode Media’s Code Conference. Personally YouTube, the plain version, is one of the best platforms for music consumption beyond simply streaming songs; nothing compares to its library of live footage, forgotten remixes, reaction videos, covers, and fan videos. Yet none of that is exclusive to YouTube Red. YouTube Red offers mobile background listening and offline play, removal of ads, and a few exclusive video series. Not a bad haul if you regularly use YouTube but the company’s held off on releasing user numbers since 2016 when they said they had 1.5 million subscribers, so I’m a bit skeptical of how many people have taken them up on that package.

Bloomberg reported YouTube won’t be increasing the amount of money they spend on YouTube Red original programming in 2018-2019, while Netflix, Amazon, Apple, and even Disney are going to shilling out massive dollars for premium video content. YouTube appears to be conceding this space to the other companies, because to reverse the business perspective, none of these other video platforms can become the next YouTube. The platform holds everything from 80s skate videos to southern cooking recipes to how-to-videos on sink repair. No other video service can or will be able to offer that breadth, Facebook may compete with raw user numbers, but will have to a long way to reach content parity. That’s my hunch as to why Wojcicki called YouTube Red a “music service,” because the reason to sign up for YouTube Red is for music, not video content. The only issue is that music continues to be poorly positioned within YouTube’s ecosystem.

YouTube arrived in February 2005, less than two years after the introduction of the iTunes store in 2003. Though the iTunes arrived after a long struggle between the music industry and Apple, the paradigm wasn’t one radically different from what existed in physical stores. People could buy individual songs off albums but file-sharing the decade prior already introduced that concept, so iTunes at least kept fans making monetary transactions.

The music industry for the next decade expressed never-ending frustration at how little money they could make on YouTube, because despite their origins as promotional items the music industry figured out how to sell VHSs and even CD/DVD combos full of music videos to try and make money back on those investments. The decline in physical sales, increased a desire for YouTube to properly payout for advertisements that were increasingly selling a product that consumers didn’t want to buy and cannibalized the niche market of selling back those videos to fans. This tension built at the same a new generation of creators on YouTube established entire careers around this new advertising and algorithmic model. Music is a large portion of YouTube’s content, but the idea that YouTube should prioritize advertisements (music videos) over longer form high quality content made specifically for their platform is strange. Yet that was and remains the music industry’s argument.

When Spotify started gaining mainstream attraction started in the early 2010s—let’s not forget about a 2009 major label investment as well—they offered a free tier to funnel people towards subscriptions; then Apple Music and Tidal, a near decade after YouTube appeared, put all of the music behind a paywall. Twice YouTube was caught in a bad position of arriving too early and threatening an old model of music consumption (iTunes); then showed little willingness to adapt the subscription model the music industry desired. YouTube resisted subscriptions, because like their parent company Google they make money selling advertisements at scale. Subscriptions not only doesn’t scale at the same rate, it effectively chops away at their best consumer base for experiencing advertisements. YouTube isn’t a music platform, it’s the internet’s default video service and frustratingly for labels that’s a bigger business than the entire catalog of record music.

Lyor Cohen, YouTube’s Global Head of Music, earlier this year was profiled by Bloomberg News and this particular section stood out to me (emphasis is mine): "The centerpiece of Cohen's efforts is the paid subscription service. YouTube is the internet's most popular video site and one of the most important promotional tools for artists. But advertising-supported music streaming accounts for less than 7 percent of U.S. music industry revenue. If Cohen can train some of YouTube's billion monthly users to pay for a subscription, he would open up a new financial spigot for the music business. 'I'm claiming next year being the year of music,' Cohen said of 2018. 'The music business has so much more to gain by working together and building things.'"

Now this article isn’t the only one to ever posit if “X company holds a massive user base and they can just convert, win, win.” Except let’s slightly reframe it. The music industry wants YouTube to either make a new product within YouTube so compelling that a billion people will subscribe for access to it or make YouTube so shitty that a billion people will pay money to back access to a platform they’ve understood to be free for a decade. That sounds super easy, why doesn’t YouTube Red already have 500 million subscribers?  

Despite their decade long relationship, I don’t see how this ends up with either party being happy in the foreseeable future. Polygon’s Ben Kuchera wrote an interesting article last week called “YouTubers are now just Uber drivers who might get rich.” He stepped further back to look at not only look at how much YouTube morphed the idea of online video, but its ubiquity confused creators, who take it for granted. He wrote, again bolding my own: "Launching a media business used to be a complicated thing that required teams of people, all handling different jobs. Suddenly YouTube could handle most of that for you: hosting the videos, selling the viewers to advertisers and cutting you in on the profits. There was a lot of talk about how YouTubers were the new face of independent media, a change from the traditional press. But very few people leading the charge realized that wasn’t quite true. Working on YouTube means working for Google, but without the benefits of a steady paycheck or a say in how things were run...So now if you want YouTube’s free video hosting and free ad sales and all the other free stuff that you used to have to pay teams to handle, you have to play by YouTube’s rules. And those rules are changing rapidly, even though you don’t have a lot of say in what they are or how they’re being applied."

Music labels appeared early in recognizing this issue, but unlike an average YouTube creator, the concentration of power within the music industry allowed them a seat at the bargaining table. The always awkward conversation was reported in Billboard last year over a concern about how low the advertising rates are for music videos. Music executives were reported on and off record racking their brains trying to understand why music videos weren’t receiving ads.

The article supposes a number of differing ideas, but personally I’d wager the answer isn’t in one, but rather many. Last August a very rich important man, Lyor Cohen, admitted as much by oddly placing blame on the “low” advertising rate on developing markets. Sure ad-rates in Indonesia might not equal the United States, but it’s hard to imagine a world where the richest countries don’t always outspend poorer countries. A more concrete problem was that the number of ads on music video decreased from 60% in 2012 to around 35-45% in 2017, which is pretty sharp. There was also issue with an unexpected rise in mobile usage, but the article even admitted that argument was then when that was a trend within all media.

The unmentioned factor in all of this equation is YouTube in 2012 changed it’s algorithm to try and retain viewers. The company decided to start favoring watch time over views, which not only sparked a wave of long gaming videos that lead to YouTubers like PewDiePie, but effectively undercut the value of a music video. Long videos uploaded daily is not the pace of a musician even a major record label. It’s strange how little this is mentioned in why YouTube’s ad-rate on music videos started decreasing in 2012 when this shift occurred on the platform. That’s the issue in comparing YouTube to sololy music platforms: Spotify doesn’t offer user created makeup tutorials and Apple Music doesn’t even allow non-paid streaming outside of its free trial. Conflation of these wildly different platforms distorts reasonable expectations.

This is why I’m so intrigued by their rumored music streaming service “Remix” that’ll bring together YouTube Red and Google Play. The service not only must compete with Apple Music and Spotify but also YouTube itself, which is why I remain fairly skeptical of kind of dent it can make into an already crowded market. Polygon reporter Julia Alexander last week wrote about major YouTubers looking at the internet browser Brave that’d allow for cryptocurrency tipping, so creators could get around the problem of YouTube monetization. The platform’s biggest players realized what the music business already knew in that videos can’t be the end game for sustainable creative content. Labels, and YouTube, are too invested in each other to cease working together but I wonder when the relationship starts to weaken.

My pessimism isn’t to say that YouTube will give up on music, far from it—Ozuna, the reggaeton singer, currently averages a preposterous 22 million views a day. Instead I just imagine that this awkward tango will persist until music industry recognizes it’s a piece, not the whole, pie of YouTube’s community. The “issue” both face is simple: YouTube to millions of people is music and music to millions of people is YouTube.

It’s Time to End ‘Trending’ - Select All
Brian makes a quick aside about how trending videos actually work their way through YouTube’s algorithm and how the system is made to favor newer videos that I thought was interesting. But, the broader point that ever since we knew that “Trending” pages could be gamed that we should’ve long abandoned them.

YouTube’s Fake News Problem Isn’t Going Away - The New Republic /
Untrue-Tube: Monetizing Misery and Disinformation - Medium
I’d say read these two pieces in order, because the New Republic piece makes a leap to say that conspiracy videos are ruining YouTube, then “Untrue-Tube” affirms that assumption. If you’re wondering why you’re not getting ads on a music video it probably isn’t because of a deep web of conspiracy videos about 9/11 receiving ads instead...but that content probably isn’t helping.

Why Can Everyone Spot Fake News but YouTube, Facebook and Google? - Buzzfeed News
I’m a journalist so forgive the navel gazing, but I find it amazing that a platform with over a billion users can’t handle moderation any better, but at least some reporters are looking to clean up their shit. Lovely muckraking.

Analyst Claims YouTube Is ‘Probably’ a $15bn Business - Music Ally
Last, but certainly not least YouTube is potentially making over $10 billion a year. Conspiracy videos, fake news, child exploitation videos, reaction videos, gaming walkthroughs, Bollywood clips, quasi-porn teasers, education videos, and occasional music videos are helping fuel that massive growth. Who knew owning the largest internet video platform could be lucrative?