Facebook’s musical ambitions come into greater focus
We recently wrote about social media titan Facebook’s ambition to become a player in the streaming music industry, but this week, they’ve become clearer. Last week, the company signed its most recent deal with a major record label when Warner Music Group became the second of the “big three” to sign a licensing contract. Facebook is angling to make sure its 2 billion-plus users can post videos featuring popular songs without reprimand – but the music business may well be playing it off against another streaming giant: YouTube.
Facebook and Google’s share price trajectory over a one-year period
SOURCE: Yahoo Finance
YouTube is – by most measures – the internet’s most popular place to listen to music. But the revenue that record labels make from the site is unimpressive: it doesn’t even outpace global sales of CDs, a borderline defunct medium. Still, turning it down doesn’t make much sense: in the first half of 2017, YouTube paid $273 million for the rights – without another, better, offer, labels would just be turning down hundreds of millions of dollars for nothing. And even worse, denying YouTube music rights could push eager listeners towards pirate copies, meaning record labels would get nothing at all.
YouTube has a huge amount of leverage in these negotiations, because it’s not clear what other options record labels have but to sign with them. The company offers a share of advertising revenue from the videos in which licensed songs feature – but it’s not enough. Record execs also complain that the site doesn’t police its content enough to avoid unauthorized use of their songs. But again – what’s the alternative? Enter Facebook.
Facebook is still a long way off organizing its musical offerings to the point that it’s a serious competitor to YouTube. But the first moves have been made, and the site is paying better for its rights than YouTube does. This emboldens record executives to demand higher prices from YouTube – if Facebook can offer a suitable platform to get music out there, then a large portion of Google’s leverage evaporates.
It’s early days yet, but the major labels are looking at the bottom line and dreaming of ways to close the “value gap” between what YouTube makes from their music, and how much it passes on to them. That could be a big benefit for Facebook further down the line.
Dominion holds both Facebook and Google, the parent company of YouTube, in its Global Trends Ecommerce Fund.
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