How Much Does YouTube Cost the Music Industry?

It might cost album sales, but it more than makes up for it in royalty payments.

Apr 12, 2014 at 7:21AM

A recent study found that YouTube costs Warner Music Group upwards of $40 million per year in lost album sales. The same conclusion could be made about Sony (NYSE:SNE) and Universal Music Group -- the other members of the big three major labels.

But the Google (NASDAQ:GOOG) subsidiary isn't necessarily to blame for the declining revenue throughout the music industry. In fact, it would seem as though YouTube is a net positive for music revenue.

Youtube
Source: Wikimedia Commons

How much does YouTube cost the music industry?
In 2009, Warner Music Group (WMG) decided to pull all of its music from YouTube over a licensing dispute. The blackout lasted from January to October, providing researchers with a large enough window to study the effect of YouTube on album sales. A couple researchers from Fairfield University and the University of Colorado Boulder recently published their findings.

The study found that removing content from YouTube boosted sales by as much as 10,000 albums per week. The researchers are keen to point out the effect is much stronger on the most popular albums (i.e., top 10, top 25) than it is on less popular Billboard Top 200 albums. In fact, the effect is negligible on albums outside the top 50. This finding seemingly negates the notion that YouTube has a promotional effect.

In their conclusion, the researchers assert that an average top album could lose about $1 million in sales due to YouTube. They use an average effect of 4,000 displaced album sales per week and 40 top albums for WMG.

If we consider YouTube only has an impact on top 50 albums, as the study implies, we can estimate the music industry as a whole loses about $130 million per year from YouTube. This is in line with the study's estimates for the impact on WMG's revenue and the U.S. music industry's revenue as a whole.

How much does YouTube generate?
Nearly 40% of all YouTube views are music-related, making it the No. 1 music streaming service. Vevo, the music video site founded by Universal Music Group, is the most popular channel on YouTube with over 4 billion streams per month. 

YouTube reportedly pays out between $0.60 and $2 for every 1,000 music streams. On the low end, Vevo alone takes in an estimated $30 million per year in royalties from Google. Note, Vevo only hosts music videos from Sony and Universal and represents just a small portion of the music streams on YouTube. Psy isn't even on there!

 Psy
Psy Source: Wikimedia Commons.

Overall, YouTube VP of content Tom Pickett claims the company has paid out more than $1 billion to music rights holders "over the last several years." $1 billion more than covers the estimated losses in album sales from YouTube since Google purchased the platform in 2006.

The music industry needs to learn how to use YouTube
Instead of harping on studies that point to YouTube as one of the reasons for diminishing revenue, the music industry needs to milk YouTube for all it offers. Whereas music videos used to be promotional tools, they're now the product. They need to promote these products differently than they're used to.

Baauer

Baauer. Source: Wikimedia Commons.

Brandon Martinez of MCN INDMusic, who helped the Mad Decent label capitalize on the viral success of Baauer's Harlem Shake last year, said, "for every piece of content you release, there should be 6-8 other pieces of content to support that." (Or, in Harlem Shake's case, 1.7 million pieces of content.)

Adopting Martinez's strategy will allow the music industry to multiply its revenue from YouTube without demanding higher royalty rates. Meanwhile, the cost to make such content -- like a "making the video" clip -- is relatively small.

Again, the music industry is slow to adapt to technology, and continues to resist it at every step. While that might work for a select few artistsit won't work for the industry as a whole.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Google (C shares). The Motley Fool owns shares of Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers