Via TheRegister,  I found the link to Digital Music News where we can all see a leaked copy of YouTube’s proposed contract for Indie music providers.

One thing is true, YouTube is a very big player, it can bring on really big pressure on anyone, including me. As such, competition authorities should take a look at it.  Unlike the source quoted by TheRegister, I am not sure about the outcome.

I am not a lawyer, and the contract is full of legal speak. Skimming at the contract, looking at the points raised in TheRegister’s article, notably the Covenant Not To Sue, No Windowing, e.g., give exclusive rights to Amazon to publish a work ahead of the rest and royalty rate fixed by competition, a.k.a. big labels, I have to say while those is certainly one way of reading the contract, all  looks like an extreme view. Did YouTube drive a hard bargain? Threatening to remove content from providers who do not sign up means it is definitely a big YES. However, a few other things as well as history between content provider and YouTube, lead me to conclude that YouTube had not been unfairly strong arming them into signing the contract. The key word here is “unfairly”. On the other hand my view might be biased towards Google.

Without examining the context, the “Covenant Not To Sue” does appears to give YouTube’s user immunity to upload content if content provider sign up. The sentence reads [Emphasis Mine]

“[…] Provider covenants not to sue any Users who synchronizes any Provider Content in a User Video uploaded to the YouTube website, to the extent that the Provider’s Claim is based on the infringement of rights granted by Provider to Google herein“

This italicized part is crucial. It basically restricted the immunity provided by content provider to only those they have granted to YouTube in the contract. The pro-Google way of seeing it is Google is also buying the rights for YouTube users to upload contents where it is compatible with the agreement. The key for me is it is a minor extension of what they would had given to Google when they signed the contract anyway. Google monetizing user uploaded content without paying the provider? Take a step back turn 180 degrees and one can argue that Google wants to buy that rights with this contract.

Most crucially, if YouTube’s user remixed a track and upload it, they are not covered by the immunity and is still liable to be sued. Under this contract, Google still does not have the right use the user content and therefore cannot monetize it. The scope for Google to monetize user-generated content without paying Indies is limited. One can argue that it is those user-generated content that creates the opportunity for  content providers to sell on YouTube.

Now, imagining this part is not in the contract, content provider will come back to YouTube and tell them the contract basically force YouTube to take their content exclusively from them. This creates additional liability for YouTube for user uploaded video on top of “Safe Harbor”. YouTube Legal Team of course see this and  acts to counter this.

Don’t like “Safe Harbor”? Ask the lawmakers to change the law. It was a compromise they stroke those years ago and will have to live by it. If any, the music Industry cannot even say it is unfair because they were were the weaker party when the law is drafted. The law to me is a good compromise: Nobody has the duty to protect your property. You have to do it yourself. The “Safe Harbor” approach give you a mean to do it.

I do not understand why TheRegister hinted that artists cannot sell album now, permit streaming service later. That  type of windowing is still permitted under this contract. To me, the paragraph in question is “b. Catelogues Commitment and Monetization”. In particular, the sentence [Emphasis mine]

“[…] Provider will provide Google with the same Provider Sound Recordings and Provider Music Videos on the same day as it provides such contents to any other similarly situated partners“

This to me is the what is normally called the “Most Favoured Nation” provision. One cannot give iTune the rights to stream video ahead of YouTube. One cannot give Amazon the right to sell individual tracks instead of whole album before YouTube. Reason is YouTube is offering streaming service andto sell individual tracks and as such, both Apple and Amazon are “similarly situated partners” as YouTube in both context. While it is possible, I do not think Album Sales and Streaming Service as “similarly situated”. Finally I cannot see other big players like Apple or Amazon not insist on this type of clause themselves.

The fact that Indies are required to agree to the price agreed between YouTube and big label is a problematic one. There is a legitimate worry that YouTube will collude, knowingly or unknowingly, to unfairly assert monetary pressure on smaller producers. While I am not sure it is a “restrain of trade” as one source of TheRegister’s says, it is worth scrutiny.

On the other hand, requiring YouTube to negotiate with each and every producers might also be too difficult for YouTube to pull of. Perhaps the solution is to use some independent body to set the rate for everyone. The use of independent body to set rates is quite normal in the music industry. This is, however, one of the point which I do think Indies have a legitimate worry and need to be addressed.

 

Now, putting my pro YouTube hat on, here are some observations.

The first is that YouTube is a privately own walled-garden and it has the rights to choose who is coming in or out. If it says you have to sign a contract to come in and you do not want to, it has the right to say you cannot come in.

The next thing is the contract can both be interpreted in the extreme by YouTube or Indies putting their own colored lense on. Any legal system will have to use a transparent, colourless lens and use common sense. So far, there is no evidence that YouTube or Google normally play hardball and interpret everything to its selfish interest to the detriment of everyone else like some other companies. When you take that into account, the contract is not that bad.

I think the regulator should get involve here. YouTube is a big market place and potentially make or break music providers, especially smaller one (read Indies). As a dominant market player it has responsibility normally not associated with simply  being a market player. Big contracts like this, especially one that has a David vs Goliath complex like this one, should be routinely scrutinized to make sure regulations are followed.

However, I see several points against the Indies which are difficult to overcome if it goes to regulatory scrutiny. First and foremost is YouTube has the rights to decide what comes in to its walled garden. Denied entry into that walled garden is being most likely equal to being denied the most efficient way of distributing content, but as Judge Jackson in the original Microsoft Trial noted when he had to make a decision on whether Microsoft’s deal with PC makers to exclusively install IE on new computers, it is not an antitrust matter to deny the competition the most efficient way of distribution. In this case, Google is not even a competitors to the Indies. Moreover,  the presence of at least one other bigger wall garden known as iTune means Indies has another efficient way of distribution. In other words, nobody, Indies included, has the rights to insist YouTube let the them in.

Second, YouTube’s decision to exclude them from YouTube is a business decision it is entitled to take. In fact, it can argues that without a contract, it is at risk of being accused of infringing the rights of Indies by hosting any of their content at all and it is a risk it refuses to take. It can even take the moral high ground by saying the reason it does not want to host those content is because it wants to be clean of infringement claim.

Third, even if the regulator accepts that YouTube had exercised  strong armed tactics, the deal as it stands could had easily come verbatim from iTune or Amazon. Sure, we hear the same noise as well from the same parties, but they finally still sign on the dotted line. So what is so different here that YouTube should be singled out?

All these are of course hinged on the fact that YouTube is not ruled to have extremely strong market power that it can bring monopolistic behaviour to bear. If it can, then regulator must step in to make sure it does not. I find it difficult to build such a case against YouTube, particularly with iTune being a very big if not the biggest player in the music market, and Amazon hot on  the heels of Google if it is not YouTube’s peer or bigger than YouTube. There are also a lot of other video services that wants ot replace YouTube.

In all, I think YouTube is in the clear, the threat to Indies is overstated. But regulators should make a quick decision for everyone’s sake to see whether YouTube is anything to answer. What I do not want is a drawn out damp squib we have with the Search anti-trust case in EC.

One of the source of TheRegister’s article claims that this is one of the contract ” .. so bad that you would never sign it in normal circumstances. But Google has a gun to your head”. The first part may be true, but I doubt Google has put a gun to one’s head.