You’ve no doubt heard that Google has rearranged the deck chairs to reorganize the company. The general idea is that Google is establishing a holding company titled “Alphabet”–please resist the urge to point out that Google now owns the alphabet. What underlies the restructuring is that Google has essentially succeeded in its initial business play to organize the world’s information whether the world likes it or not. Now Google is setting about commoditizing all of it. Not just music, books, movies, television programming.
All of it.
With the European Commission breathing down their necks in what appears to be a vigorous antitrust indictment, one can’t help noticing that breaking up Google will be that much simpler after the Alphabet reorganization than before. So while the spin that Google is putting on the reorganization is that of confidently going a new direction into the future, there may actually be greater uncertainty about the future at Google than ever before.
It’s an odd coincidence that Google is announcing the Alphabet reorganization at the same time as they are seeking a delay in responding to the EC’s antitrust indictment. Jamie Gorelick can’t help them with this one apparently.
As Re/Code’s insightful journalist Kara Swisher said on Charlie Rose’s show:
You will hear Google saying — the most powerful and sometimes frightening company on the planet — saying oh, we`re just a startup. And so it`s kind of perplexing at the same time… they want to be young and so this maybe gives them a little youth and innovation….I think that it`s just another way to state what they were already doing and it makes for great headlines and then we can all make Alphabet jokes and things like that. But in general, it`s just a statement of what they were doing before.
What Google is essentially accomplishing is moving its riskier business lines under separate managers under the new Alphabet holding company but is leaving search, Android and YouTube in Google. (It remains to be seen exactly how this will all work as a matter of corporate formality, not to mention that pesky shareholder voting business. Since the Google insiders have 10 times the voting power of folks like you and me–to the extent ordinary shareholders get a vote at all–we can be pretty confident that when the dust settles, the insiders will still be in control. If not more so.)
One also can’t help noticing that the European Commission is currently prosecuting Google for antitrust violations in search, is investigating Android for potential antitrust violations and also has a complaint against YouTube pending from IMPALA (the European indie label association). Pure coincidence, I’m sure.
While we can speculate on these high level machinations, we have much more mundane aspirations. I’m watching Google reorganize our money and thinking about what all this means for YouTube.
What About YouTube?
So why is YouTube still combined with search? We don’t know the exact reason because no one is talking (yet). This is Google after all. One way to think about this is that YouTube is simply a format based version of search that extends Google’s monopoly power over the video vertical subsidized by Google’s monopoly rents from search. As we have learned from various investigations and experience, Google clearly favors its own products in search, so it’s not surprising to see YouTube results at the top.
As Matthew Ingram observed in a thoughtful article in Fortune:
Since both YouTube and Google are involved in search (if you see YouTube primarily as a vertical search engine devoted to video) and both depend on advertising for the bulk of their revenues, it arguably makes sense to have them part of the same company, where they can share resources. The flaw in this theory is that YouTube wants to be much more than just a search engine, and real investment in video and the creative economy requires very different skills….A couple of ex-Googlers speculated that YouTube may not have been broken out as a separate unit because Google’s revenues and growth rate are flattening, and therefore it needs to keep all of that YouTube cash and growth inside the search company until it can figure out how to grow faster through mobile and other means. Once that transition has been made successfully, then YouTube can be spun out.
What this may mean for Margrethe Vestager the European Commission’s antitrust regulator is that any prosecution of Google for search must necessarily include YouTube. We’ll see what the future may hold on that score.
But what this means today for artists and songwriters is that we need to be much tougher on YouTube in royalty negotiations. Music is a huge part of YouTube’s success and revenues. Morgan Stanley produced this chart after some green eyeshade working over of Google’s publicly disclosed revenues in an effort to break out YouTube’s contribution to revenue (which neither Google nor YouTube provide directly). Morgan Stanley thinks YouTube’s revenue is growing 38% year over year. You know–that revenue we’re supposedly sharing in. I’m sure your YouTube royalties are growing at the same rate.
In fairness, these numbers are estimates of YouTube gross revenues and does not take into account YouTube’s operating costs. However–when a “startup” is booking $6 billion, we are well past the point that we should feel we need to cut them a break on royalties. As Kara Swisher noted, Google’s “we’re just a startup” smokescreen is a bit hard to take.
The Alphabet reorganization is further confirmation that YouTube is a mature business and should be treated as such.
I’m Ready as Anybody Can Be
Here’s the reality: This business of taking a mysteriously calculated revenue share is bullshit. The idea that a $6 billion company is paying a royalty that requires a scientific calculator to determine is madness. The whole YouTube royalty structure has to go. Do we say to CBS, well pay us a part of what you get and if you decide to sell low that’s OK. If you decide that some uses of our music aren’t going to be “monetized” (a vile concept), hey, that’s up to you.
No we don’t do that. We say here’s the price, pay it or don’t use the music.
If YouTube wants to get a license for the premium music videos then guess what? Drop the sham positioning on DMCA safe harbor. Why on earth should they get both? If they want to be in business with artists and songwriters, then act like it. And if you consider that video search is just branded search under a different name, then why should Google get to hide behind the sham safe harbor at all, particularly now that they’ve told the world that YouTube and search go together.
It’s also nearly impossible to determine whether we’re being paid correctly as upstream royalty compliance is essentially blocked by Google and wrapped in NDAs. This is a petrie dish for fraud on a massive scale that would make Morris Levy blush and someone needs to investigate it–like Mississippi Attorney General Jim Hood is trying to do while being sued by Google at the same time.
It’s time to stand up and be counted on these issues.
You’ve Got to Stand for Something or You’ll Fall For Anything
This is not going to be easy. Somehow we have gotten into business with the most litigious company on the planet that is running an Enron-level laundry inside the darkest of all black boxes. YouTube has somehow gotten our marketing folk believing that somehow they need YouTube to market artists.
This assumption needs to be tested. Taylor Swift has already done a great job of showing us all that YouTube needs hits and hits don’t need YouTube. The Man 2.0 behind the curtain did not dig that at all. My bet is that it’s about to start happening a lot more frequently. It’s really very simple–we just need to get it in our job descriptions that hits still need to happen and if we can’t use YouTube to our advantage we will not allow YouTube to use us to theirs.
The Alphabet reorganization should be plenty of proof that YouTube is not a music video service–it’s a search vertical and a data honey pot that is skinned to look like a music operation. And it books a fortune.
It’s time to get serious. Google has shown that they are very serious and we should be, too.
Wouldn’t you like your royalties to be growing 38% year over year?