by Juan Carlos Melendez-Torres, Policy Intern, and Kevin Erickson, Communications Associate

This week saw tensions rise between YouTube and Worldwide Independent Network (WIN), a global coalition of independent music labels. According to reports, the indies aren’t thrilled with the contracts for inclusion in YouTube’s new video streaming service. Though the discussions have apparently been in progress for a number of months, WIN’s release of a statement on May 22 signaled the development of a new rift. WIN suggests that the terms offered by YouTube to independent labels are unfavorable. In addition, the organiztion claims that YouTube is threatening indie labels with exclusion from its new service should an agreement not be reached. However, it’s important to keep in mind that this is a new platform, not the YouTube that indie labels and artists are already familiar with. It’s par for the course for services that require negotiations for the use of content to not include that content if terms aren’t reached. In fact, were a service to do so, they’d be in violation of the law.  

(Update 6/18/14:  Google has confirmed to Gizmodo a story originally reported in the Financial Times clarifying that YouTube will indeed block indie content from its current free service.)

The issue isn’t just about independent labels and YouTube; it’s about indies’ struggles to be treated fairly accross the board. Typically, when a new service is launched that requires direct negotiations, the tech company does deals with the major labels first, as the perception—whether true or not—is that a viable digital music service requires full catalog from the Big Three music companies. That means that when it’s the indies’ turn to negotiate, the terms have largely been set by the bigger players.

Another factor is the misrepresentation of market share by major labels, which indies may feel is forcing YouTube to pay out an artificially inflated portion of the “fixed pie.” (Indie aggregate market share is actually around 34.6 percent of the US market, on par with that of major labels.) WIN claims that the non-negotiable contracts offered by YouTube also reportedly offer rates lower than the industry standards set by other streaming services like Spotify and Deezer. (Keep in mind we have little to no details about what the service will ultimately look like or how its functionality compares to other sites, but we do know that Google’s on-demand music platform has one of the highest per-stream rates.)

In contrast to the public response from WIN, which is not directly involved in licensing discussions, Merlin—an organization that services digital music platforms on behalf of independent labels—has remained remarkably tight-lipped about the situation. Notably, Charles Caldas, CEO of Merlin, did issue some mild criticism of YouTube in recent months, but has stayed mum on this issue.

This isn’t the first time that a dominant market player has offered indies a “take it or leave it” contract.  When Apple introduced iTunes Radio and chose direct deals over statutory webcast rates, indies found themselves in a similar situation. Not accepting Apple’s terms would mean being excluded from iTunes’ entire platform, certainly an unwelcome prospect. Along these lines, when Google Play introduced its All Access streaming service, the choice was opt-in or opt-out, even for the download store. Apple’s acquisition of Beats Music, made official this week, raises questions about whether Apple will extend its iTunes Radio terms to their new streaming property.

There’s no doubt that the independent sector is crucial to today’s music ecoysystem. Growing global market share, consistent presence on the charts and Gramamy wins offer plenty of evidence of relevance. Yet the consolidated major labels still have all the leverage. It’s easy to blame the services, but that’s hardly the full picture. In fact, when FMC went on record opposing the merger of major labels EMI and Universal Music Group, one of the reasons we gave is that it would give major labels even more power to dictate economic terms for everyone else. And that seems to be playing out time and again. Still, we’re encouraged to see the independent community stand up for fair treatment within the emerging digital marketplace. But there’s a long road ahead in convincing the power players that indies are desreving of respect. FMC and our independent label and artist friends are ready, willing and able to keep making the case.