YouTube will start charging to see music videos with no ads

Wendy Lee

Published 5:44 pm, Friday, August 22, 2014

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  M.I.A. attends the YouTube Music Awards in November. The site plans to charge a subscription fee to view some videos without ads. Photo: Dimitrios Kambouris, Getty Images

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YouTube is responsible for making free videos an integral part of the Internet, but its anticipated move into charging users to see videos without advertisements is drawing opposition from some of the network's music partners.

The most vocal opponents are independent music labels, who say they are being forced to agree to unfavorable terms or risk making no money from YouTube at all.

"It's awful that indies are being treated as second-class citizens by YouTube," said Rich Bengloff, president of the indie label trade group American Association of Independent Music.

YouTube wouldn't disclose details of the subscription plan, but Bengloff said users would be asked to pay a fee to see music videos without ads. Currently, commercials precede most music videos uploaded by labels, which collect a portion of the advertising revenue.

Under a subscription model, the labels would instead get a portion of the fees. Independent labels say their cut isn't big enough.

Labels are also negotiating for a minimum annual payment or advance. Bengloff says the independent labels are on the short end of that deal as well.

Sources with knowledge of YouTube's plan say labels that don't agree to participate won't be able to make money from ads on existing videos. Independent labels say the policy change puts them in a bind.

"We feel like since they are a monopoly, we need to be on YouTube," both to promote the artists and to make money, Bengloff said.

Younger listeners

YouTube has been key for artists to gain younger listeners, and the subscription model could generate even more money for the site than ads ever could. The company is expected to make an estimated $3.2 billion in ad revenue in 2014, not including subscriptions, according to research firm eMarketer. YouTube's audience is huge, with more than 1 billion monthly users. If just a fraction of those people were to pay for a music subscription, the payoff could be huge.

"There's no sign of slowing down," said Paul Verna, eMarketer senior analyst. "YouTube is like a brand. It's like Kleenex. People use it as a verb and completely associate YouTube with video online."

Getting people to sign up for subscriptions can also be helpful to YouTube's parent company, Google, which can store credit card numbers and make it easier for people to buy other Google products and services, he said.

But the challenge is in whether people will be willing to pay for the features. YouTube hasn't said how much it would charge for subscriptions, but music streaming sites Spotify and Rhapsody offer premium subscriptions for $9.99 a month.

"YouTube has always been a free culture. That's a very large obstacle," Verna said. "It's not to say they can't do it, but they really have to bring something to the table to cause people to think that this is really worth paying for."

One thing YouTube has going for it is its vast music video collection. Over the years, YouTube has promoted itself as a professional video platform, not just a hub for homemade cat and dog videos.

Financial payback

As YouTube has become more popular, major music labels have felt that they should be getting a greater financial payback from YouTube based on the content they provide, saidMark Mulligan, an analyst with MIDiA Research. Unlike the financial returns the major labels get from Apple or Amazon, the amount of revenue they get from YouTube falls short despite the site's reach, he said. Charging for subscriptions could change that.

"Any subscription revenue on a per user basis would be immeasurably higher than ad revenue," Mulligan said.

YouTube will be competing for subscribers with outlets like Rhapsody, which has more than 2 million premium subscribers. Paul Springer, Rhapsody's senior vice president and chief product officer, said he believes YouTube has its work cut out, trying to persuade users to pay for subscriptions, when it has built its brand around free video.

He also warned that mixing the license rates for audio and video can be a complicated process.

"Jumping in is the easy part," Springer said. "Learning how to swim is the part that is difficult."

Wendy Lee is a San Francisco Chronicle staff writer. E-mail: wlee@sfchronicle.comTwitter: @thewendylee

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