NEW YORK: YouTube's launch of a Music Key, a subscription service that allows users to play music videos without being interrupted by ads, marks a potentially significant change in the digital music landscape.
With 1bn monthly users YouTube has long been the most popular music platform in the world among fans, but the music industry is less enamoured as its product has been given away free with very little coming back in the form of royalties.
The Wall Street Journal noted that the average user of a free, ad-supported streaming service was worth around $4 a year to record companies, a far cry from the $50-$75 common in an earlier era when people bought physical products.
Spotify is the leading streaming service that charges users, and around 70% of a subscriber's annual $120 payment goes back to record labels and music publishers, putting it on par with records and CDs.
But Spotify has three times as many free users as paying subscribers – 37.5m against 12.5m – and the split at Pandora is even more stark – 76.5m monthly active users in the US but just 3.5m who pay.
Record labels and artists are understandably keen to see more people pay for subscriptions, a stance highlighted recently by Taylor Swift who pulled her entire catalogue from Spotify, apparently after it refused to restrict access to her music to subscribers.
With YouTube now entering the subscription market, the economics for labels and artists start to look distinctly different. Given the platform's size, even if only a small proportion of its users start paying, there will be rather more income to redistribute.
One record company executive said that in hindsight it had been a mistake to ever allow licensees to offer any on-demand listening features free. The major labels are now reported to be pressing streaming services to cut back on their free-trial periods, to do more to reduce churn rates and to sell more advertising on their free services.
Ads are what often drive users to sign up, in order to avoid them, something keen music lovers are more likely to do.
"What we need is the average music consumer to sign up for Spotify," Robb McDaniels, chief executive of INgrooves, a digital distributor, told the New York Times
. "We've got the high-volume users, the uber users. But we need the soccer moms."
Data sourced from YouTube, Wall Street Journal, New York Times; additional content by Warc staff