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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 stream-rippers. In doing so, the service just might win back rights holders’ favor and live up to its self-proclaimed 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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