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YouTube Saga Mirrors iTunes Negotiations

While independent labels have released iTunes Plus tracks, none of the other major labels have made their catalogs available as iTunes Plus tracks (although you’ll find an occasional track or two from a Warner artist available in that format). While the initial argument from the labels had been that DRM limits piracy, the labels have chosen over the last 18 months to sell DRM-free content on sites other than the iTunes Music Store. All the labels have some of their catalog of songs available on the Amazon MP3 Store.

In YouTube's case, the issue hasn’t been DRM but DMCA, the Digital Millennium Copyright Act. YouTube generates revenues not from sales but from advertisements, so DRM is less of an issue. With take-down notices of copyright infringement, backed by the DMCA, the labels can keep any user-generated content that includes their intellectual property from staying up on YouTube for long.

Apple bent on this one, initially allowing the only label that signed up for DRM-free iTunes Plus songs to sell its tracks at $1.29 versus the standard 99 cent price.

Apple eventually moved the pricing of all its songs back to 99 cents, after only EMI took advantage of the pricing discount, closing a window on the labels that had pushed Apple to provide that very option. Still, pundits will claim that Apple must change its pricing model.

"Apple is under pressure from the four major labels to change its pricing model to a tiered pricing structure," Susan Kevorkian, an IDC audio analyst, said in mid 2008. "The way the labels are pressuring Apple is by withholding DRM-free downloads from the service."

Interestingly, the labels appear to have lost twice in this negotiation, as their DRM-free content on Amazon's MP3 store sells for only 99 cents, the same as Apple's DRM content.

Pricing negotiations have often been at the forefront of news about digital downloads, and it's no surprise that it's now also becoming news for the YouTube/music label negotiations. While recent reports of Warner's yanking its music off YouTube center on the breakdown of negotiations in which Warner is reported to have demanded a higher percentage of ad revenue—along with a guaranteed minimum payment per video streamed that contained its music, even if ad revenues didn't reach the guaranteed level—it’s likely that YouTube was already a source of income for the label.

In fact, just a few days before Warner made its decision to yank content—and step up takedown requests—from YouTube, Universal Music announced it was making "tens of millions" from its agreement with YouTube.

"It's a revenue stream, a commercial business," said Universal's Rio Caraeff. "It's up almost 80 percent for us year-over-year in the U.S. in terms of our revenue from this category."

Alternative service
While the labels sell DRM-free content on Amazon's MP3 Music Store, recent studies indicate that fewer than 10% of Amazon MP3 customers have previously purchased from the iTunes store. This flies in the face of the labels' desire to create an alternative service, which they've threatened to do—and attempted from time to time—ever since the advent of iTunes.

It should come as no surprise, then, that at least some of the major labels—including Warner, which yanked its music from YouTube, and Universal, which sees a true business opportunity in online music videos on its YouTube success—are preparing to create an alternate service which they would control.

The Financial Times reported last week that the music labels are discussing a variety of plans, including a partnership with Hulu, which was created as an alternative to the iTunes video sales model for TV and movie content.

The alternative of a standalone venture has also been discussed, proving that the negotiating tactics used in the iTunes battle are alive and well in the case of YouTube.

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