business impact of requesting to disable embedding of music videos in label channels on YouTube

A top pop star comes out with a new music video. The video is played on television, where a fan records it, digitizes it, and posts it to YouTube. The video is also posted on YouTube in the star’s label’s channel. The version in the label’s channel has disabled embedding by request. The version in the fan’s channel has not.

Someone sees the label version and likes it. They want to embed it in their Myspace page to tell their friends about their discovery, but they can’t. Someone else sees the fan version and decides to embed it in their Myspace page, and this time the embed works.

A friend of the embedder visits their Myspace page. They watch the video. They decide to add it to their own Myspace page. A friend of theirs visits their Myspace page and sees the video. Etc.

The net effect of blocking embedding is to move views from official label channels to unofficial fan channels. Also, it reduces overall views by preventing viral spread from views within label channels; most fans won’t bother to find an un-official embeddable version.

Who is the label punishing? Itself? The star? Myspace? YouTube? The fans?

Their intent is to punish Myspace. Specifically, the goal is to get Myspace to cut a direct deal with the label. (Myspace is just an example here; this is a hypothetical situation). So what does the label get out of this, and how does that compare to what it loses?

The label reduces the number of monetizeable views in several ways. It prevents viral spread, which can be a massive source of traffic. It pushes traffic to unofficial sources, which are harder for YouTube to identify for the purpose of paying royalties. (And their agreements with the labels may not include royalties for fan-supplied content). It also pushes traffic to other stars and other labels.

As far as direct revenues go, the label is moving less units (where a unit is a paid play of the video) so has to make more per unit. In terms of the deal it cuts with, for example, Myspace, this means that it has to earn *higher* royalties per view. But that’s unlikely because the deal terms for major distribution points will always tend to parity. Google, Myspace, Yahoo, etc all get more or less the same deal, eventually. So the label and star are probably losing short term revenues by blocking embeds.

The label also has contractual and marketing benefits from blocking embeds: it wants to keep the Miley Cyrus video off of sexxxylolitas.com. These sites can still embed the fan version of the video, but at least the label can say that it tried. This seems like a clear win for the label and maybe for the star.

To the extent that the purpose of music video online is to spur CD sales, the reduction in viral spread reduces CD sales. These CD sales go to other stars and labels. (Probably to Warner, which is the only one of the four majors not to block embeds).

What about long term revenues? What’s the strategic benefit? I have no doubt that the labels see negotiations with major distribution outlets like Myspace, Google, and Yahoo as a primary business opportunity. In the same way they relied on a few major retailers in the 20th century, they will soon rely on a few very large ad-sponsored web sites. The potential upside is massive.

So overall I would say that requesting to disable embedding is about negotiations with the web behemoths, and it’s a deliberate tradeoff of short term revenues for long term potential.