Category: embedding

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.

embedding permissions #3: strategic dominance

Among the problems that have led 3/4 of the majors to block embeds in third party sites of their videos on YouTube is the strategic need to maintain strength in negotiations. In a comment on the first post in this series, Jay Fienberg articulated the issue this way:

Adding to your leverage item: the labels are likely concerned that any very successful site or combination of sites becomes a primary interface between fans and recording artists, i.e., that takes the record labels out of the equation, or at least makes them only a small factor in the transactions between artists and fans.

The success of sites like YouTube potentially give these sites and/or artists and/or fans leverage over the record labels. For example, an artist can get a video seen on YouTube without a big label-type marketing budget, and so that fact could potentially weaken a labels’ negotiation in a record deal. Or, YouTube could become like a radio station and seek payola from labels to promote certain artists, etc.

The labels must want to curtail especially singular successes, like iTunes music store-type successes. These sites could become so big as to become more or less like monopsonies (buyer’s monopolies), where they have more power over the labels than vice versa.

embedding permissions #2: on internet standards

In my post on the ability for third party sites to embed video from the major labels, I concluded with a dire point: Imagine a web in which every relationship had to be negotiated by hand. It would be the opposite of the internet.

I don’t want to beat up on the labels, which tech bloggers like myself do all the time, and which is dumb. There is no point to that. The labels operate under severe contractual and business constraints, with pop stars on one side and internet juggernauts on the other. What I want is to challenge them to learn how to prosper on the internet proper, and for the tech world to understand the details of the labels’ problems.

The labels need to learn how to make internet standards work for them. This is hard because everything about their business is predicated on manually negotiated agreements, while everything about the internet is based on automated agreements. An internet standard is a method of automating agreement between arbitrary participants. By definition a standard makes room for all comers on an equal basis. No matter who you are, if you write to the standard you can work together with other parties that write to the same standard.

The majors have a lot of problems, no doubt, but this is the one that matters. The internet is made of standards. Everything else can and will change. TCP/IP will go away someday. HTTP will go away. Everything will go away but standards. For the major labels to prosper on the internet they have to learn how to work with, instead of against, internet standards.

embedding permissions

Official music videos on YouTube from three out of the four major labels can’t be embedded in third party sites. You can embed Warner, you can’t embed UMG, Sony BMG, or EMI. If you use unofficial versions of the videos posted by a third party you can embed them, but not the official versions posted in the labels’ channels.

The back story is that the labels spent the last few years having a huge fight over royalties from user-driven video sites, and successfully got YouTube to pay for rights. (I’m don’t know for a fact that YT pays, but from what I know about the industry I’m sure it’s true.)

The issue of embedding has nothing to do with whether or not the labels get paid. They get paid on embedded plays. (Again, I haven’t see any contracts on this, but I know enough to have confidence).

But now they want a secondary benefit — to control distribution. Allowing third parties to embed videos from YouTube frees them from having to do 1-1 negotiations with the labels, and the labels want to be able to negotiate with each and every site that shows music videos.

I imagine the majors have three motivations. One, to be able to charge different rates depending on the site, so that they can raise rates depending on how deep the embedding site’s pockets are. Two, to be able to meet various contractual and marketing requirements. For example they may have morals clauses for wholesome artists like Hannah Montana, which would be both a legal and a marketing issue. Three, they have other negotiations in which they want to be able to use music videos as leverage. For example they might have an ongoing negotiation with LimeWire in which LimeWire wanted the ability to show YouTube music videos along with the ability for users to share MP3s. (In reality the labels’ desire there would probably be just to freeze out LimeWire completely).

Imagine a web in which every relationship had to be negotiated by hand. It would be the opposite of the internet.