YouTube holds out after UK body drops music streaming fees

Companies that are looking to build a business by streaming music over the Internet face a delicate balancing act: they need to build an audience in order to make their business work, but face royalty fees that can cripple them before they reach a critical mass of listeners. Accordingly, those royalty payments have been the subject of often tense negotiations in the US, with various interested parties engaging in brinksmanship and threatening to go out of business. Apparently, similar issues are playing out in the UK, where the licensing body PRS for Music was negotiating a new royalty structure with interested stakeholders. This time, however, it's facing an 800-pound gorilla that's playing hardball: YouTube.

According to PRS for Music, it started negotiations with stakeholders over the streaming royalty rates about seven months ago, which would indicate they were initiated late last year. Apparently, either YouTube wasn't happy with the way those negotiations were going, or it decided that it needed to send the negotiators a message, because it took unilateral action in the middle of these talks: in March, it blocked the UK's access to premium music video content.

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PRS for Music claimed to be unaware that the move was coming, suggesting that whatever YouTube's message was, it may not have gotten through clearly. In a statement, the group said it was, "outraged on behalf of consumers and songwriters that Google has chosen to close down access to music videos on YouTube in the UK." The group went on to say that "this action has been taken without any consultation with PRS for Music and in the middle of negotiations between the two parties. PRS for Music has not requested Google to do this and urges them to reconsider their decision as a matter of urgency."

Still, it wouldn't take Einstein to figure out the general gist of it: charge less money. Last week, PRS for Music obliged, announcing new streaming rates that are significantly lower than the previous ones. The per-stream fee will now be �0.00085, down from �0.0022. The flip side is that successful companies will have to pay more, with fees rising to 10.5 percent of gross revenues if that adds up to more than the per-stream fee (that's up from 8.5 percent). The net result is that charges should be smaller when companies are just starting out and have a minimal audience, but will rise one they have a steady revenue flow.

PRS for Music is apparently making sure that YouTube gets the message that it views these changes as a big concession. According to paidContent:UK, the group's managing director used an appearance on BBC's Radio 4 to say, "We very much hope that this is to enable them to return music to users who enjoy their service in the UK."

The changes to the royalty agreement aren't yet finalized and won't take effect until July 1. In the meantime, it looks like YouTube will continue to play its cards close to its vest, and see if it can talk PRS for Music into an even better deal. Although we were unable to get a response from either YouTube or PRS for Music by the time this story was prepared, Billboard.biz was told that YouTube welcomes, "any efforts to make licensing costs more realistic, but as we're still in discussions with the PRS to agree license terms for YouTube we're unable to comment further."

YouTube apparently accounted for a substantial fraction of the money collected for streaming by PRS for Music, but the group also has to please a variety of rightsholders and fit its scheme not only to a variety of other music streamers, but also to future business efforts. PRS for Music will have its work cut out for it if it hopes to make everyone happy by the July 1 deadline.