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Straight Talk Media & Entertainment

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There can’t be too many industries around the world that can boast a single company or service
heavily involved in both the best and the worst of business. In a short space of time, the distribution
and sale of recorded music has transformed from ownership to access, and at the heart of this shift
are a small number of services that have quickly become household names. One in particular,
YouTube, is now an essential part of record-company marketing, and the popularity of music on the
service is evident in the most popular channel listings and number of followers of the world’s biggest
artists. But YouTube has a dark side that rights holders in the music industry have long struggled to
get to grips with.

Legislators in Europe are currently engaged in the lengthy process of overhauling the current rules on
copyright. A big part of that reform, certainly as far as rights holders are concerned, are measures to
close the value gap – the mismatch between music use on certain digital music services and the
revenue being paid to the music community for that use. YouTube is at the center of the value gap
debate, with rights holders accusing the service of exploiting legal loopholes to pay much lower
royalty rates than services such as Apple Music, Deezer, and Spotify. Given the speed at which
legislators in Europe work, closing those loopholes will not be a quick process.
YouTube is the world’s biggest piracy facilitator

However, recent studies on the evolution of music piracy have identified YouTube’s most troubling
downside. Stream-ripping has quickly become the biggest piracy problem for the recorded-music
industry. Plenty of online sites and mobile apps now allow consumers to “rip” an audio stream from a
video on YouTube and convert it to an audio download. The process evades all rights payments, so
artists, performers, and content creators involved in the making of the ripped content receive no
compensation.

Does a stream-ripped download equal a lost sale? Probably not – few would argue that sidestepping
legal download stores to gain access to free music means those stores are missing out on a sale. But
does being indirectly at the heart of the fastest-growing form of music piracy make a case for
proactive action? Almost certainly. It is reasonable to argue that record-company marketing gains from
having music videos on YouTube compensate for the lower royalty payments from the streaming of
those videos. But Ovum believes that given the indirect contribution of the online video service to the
rise of stream-ripping, YouTube’s claims to be a big supporter of the music industry are difficult to
swallow.

Technology exists that can identify when a stream is being ripped for illegal use rather than legal
consumption. But there is a clear lack of resolve on the part of the service to stem the new piracy tide.
Nothing can prevent the real-time recording of a digital audio signal, but equally, doing nothing to shed
the title of world’s biggest piracy facilitator is something that the Google-owned service should be
ashamed of. Legislators can close the value gap, but only YouTube can shut the door to the streamrippers.
In doing so, the service just might win back rights holders’ favor and live up to its selfproclaimed
credentials as a valued partner to the music industry.

Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this
newsletter by email, please contact us.


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