Billions and Billions: Carl Sagan, Meet Christophe Muller and Daniel Ek

If you ever watched Cosmos, who can forget Carl Sagan’s many references to millions, billions and trillions.  But Dr. Sagan ain’t got nothing on YouTube and Spotify.

In their desperate attempt to quell the international wave of anger against the respective services, YouTube’s Christophe Muller and of course the venture capitalist darling Daniel Ek have been quick to throw out vague numbers of a Sagan-level billions and billions of dollars in royalties each service has paid out to “rights holders”.

I confess–I’m far too ready to just tune out all this Sagan-esque puffing as utter bullshit and just tune it out.  My bad.

Thankfully, the eagle-eyed Tim Ingham at Music Business Worldwide was paying closer attention and noted a couple items in the timeline:

YouTube claims to have paid more than $2bn to music rights-holders in the past few years….YouTube’s Global Director of Music Partnerships, Christophe Muller said…“We’ve generated over $2 billion in revenue for the music industry in the last few years alone….”

There are a few really noteworthy things about this statement, the first time to MBW’s knowledge that the [$2 billion] figure has been publicly used.

Firstly, it’s been 20 months since a YouTube rep claimed at Midem 2014 that the service had paid $1 billion-plus to music rights holders (here’s a version of that key phrase again) “over the last several years”….The fact remains: YouTube appears to have, by default, paid out more than $1billion to music rights-holders within this time period (ie. the difference between $1bn and $2bn [in 20 months]).

That’s right–billions and billions.

And then there’s Spotify.

The Swedish service made its own ‘we’ve paid $2bn to music rights-holders’ announcement fairly recently – in November 2014, back when Daniel Ek was busy saying sorry-not-sorry to Taylor Swift.

But Spotify’s made a bigger announcement since then: in June this year, the service said it had now paid out more than $3bn to music rights-holders, with $300m in the first quarter of this year alone.

Again, there will be a bit of room for error here, but around seven months passed between Ek’s statement in November 2014 and the June 2015 announcement.

If Spotify’s payouts to rights-holders really did grow by $1bn in this time period, it would have been paying out $142m per month.

That’s almost three times what YouTube appears to have been paying labels, publishers, artists and songwriters. Despite the fact Spotify’s total active audience (75m) amounts to somewhere around 1/14th of YouTube’s billion-plus user base.

Both companies are private (although YouTube is wholly owned by Spotify board member Google) and do not publish financials.  It’s also nearly impossible for artists or songwriters to conduct a royalty compliance examination (aka a royalty audit) of either company.  YouTube is particularly well known for being both highly secretive and litigious, so it’s unlikely that anyone will ever find out whether these statements are true.

However–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.

So do you think that YouTube is paying out 1/6th of its gross revenues for music videos?

As Dr. Sagan observed:
It took nature hundreds of millions of years to evolve a bacterium and billions of years to make a grasshopper….
I wonder how many billions these services will make before they evolve a
sustainable royalty?  Now there’s an orbiting snowball for you.