:Ben Metcalfe Blog

Artists screwed both ways in YouTube deal?

Mark Cuban has posted what he is describing as ‘Some intimate details on the Google YouTube Deal’. It’s an interesting read, especially as it raises questions as to whether artists will ever be remunerated out of any existing and forthcoming copyright setllements.

Mark’s post reproduces an email sent by an “anonymous author” (though known to Mark privately) to a list he subscribes to. The anonymous person claims his thoughts are based on ‘talks with people involved and some … speculation’.

With that, there is a bit of a ‘health warning’ – Mark says:

“I cant say this has been fact checked. It hasnt[sic]. I cant say its 100 pct accurate, I dont know. But it rings true, and as I said, I trust the source”

Nevertheless, it’s a fascinating read – but the pertinent string of events that occurred during the sale of YouTube to Google (according to the anonymous poster) are as follows:

  • YouTube realized it was in trouble with the copyright holders – it gained it’s market lead by offering the popular copyrighted material that Google Video shunned
  • Copyright holders wouldn’t accept a rev share of YouTube as the basis of a settlement because the website’s biz model was unclear
  • YouTube courts potential buyers (Goole and Yahoo), buyers concerned about infringement lawsuits
  • YouTube offers to pay a bounty to significant copyright holders to keep them off their backs for 6 months – by ringfencing $500m of their sale price in 10 x $50m deals.
  • Copyright holders get smart – they don’t want to have to pass this money onto their artists so rather than being ‘paid’ the $50m directly, they take a short-term equity stake in YouTube which the eventual buyer (Google) buys off of them (worth, surprisingly, $50m). The net result is the transaction was a corporate investment = no money to artists
  • Knife is further twisted at this point by copyright holders (who now have equity stake and looking to gain money from equity sale in YouTube) by aggressively sueing YouTube’s video competition for copyright infringements!
  • They hope this will scare off VC investment – sealing up the players and confirming YouTube’s dominance. Bandwidth costs, etc could even choke existing players with no investment coming in future months.

Ok, so we can’t be certain this is 100% fact. But if Mark Cuban says it ‘smells right’ then I’m willing to at least publish it here — he’s got a track record of being a player in the media industry, doing high stake deals like this, and has experience of selling to search engines… Hey, he might have even written the email himself in some double bluff – I don’t know.

The key point I want to raise to the fore – aside from the ‘shock, isn’t it all nasty’ stuff which seems to be getting the limelight on TechMeme – is the artists getting shafted.

Mention a site like YouTube or a p2p site and the first thing many people cite are the bands and artists who loose out from the unauthorized posting of their work. As much as video upload sites and p2p sharing is cool, it’s fair to say that when copyrighted material is involved, artists tend to loose out (under the current business models, at least).

If deals and settlements are made, we’re led to believe that every thing’s been patched up and that the money is going to the artists and bands (most of whom are going to be longtailer’s earning a lot less than Maddona and Kylie) to be remunerated accordingly.

But not, apparently, in the YouTube deal. Between the record industry and YouTube (hey, and maybe even Google) it was someone’s ‘smart’ idea to sweeten the deal by engineering it to be corporate investment – thus removing the need to distribute any of the income and royalties to artists!

If that was the record industry’s idea (it probably was) then maybe people shouldn’t feel so guilty by continuing to swap copyrighted material after all? The artists were never going to see the money regardless of whether a settlement was made or not. They’re screwed either way.

If it was YouTube’s idea, then I think it says a lot about the company – especially the founders. Sure, I understand their back was to the wall and they were trying to work their way out of a tight spot by getting the rights holders to sign. But you could argue the main reason they become the top dog in this industry and found themselves to be running a high-value company was because they were happy to turn a blind eye to copyright infringement to a greater extent then their competitors. That’s not the only reason, but it’s significant because it meant they had compelling content when others didn’t and could leverage traction in the market place from there. The point is this was the ‘pain’ for all that ‘gain’. And their way out was to shaft the artists who’d help them get there in the first place.

Now, if Google had any involvement in this idea then boy won’t the shit hit the fan one day if it can ever be corroborated. Google have always sparked controversy around the area of copyright – Google Book Search, photographic agency images in Google News, caching our copyrighted webpages without permission etc… But this goes one step further and IMHO is certainly at odds with their mantra of “Do no evil”.

I want to end, once again, by reaffirming that these are the views of an ‘anonymous poster’ and thus to be taken as such. Some, or indeed all of this, maybe untrue. But of course this kind of stuff does happen a lot behind the scenes of these deals, and we the general public never get to find out exactly how it all shook out.

This wouldn’t be the first time artists got screwed over by their record companies in the ‘land grab of online royalties’ and I doubt it would be the last.