YouTube users have seen Avril Lavigne's video for "Girlfriend," the most-viewed video on the site, over 118 million times. Last year, Avril's manager spoke of the millions she would earn on licensing from those views, and the idea that artists and labels might actually make decent money from on-demand music sites gained momentum.
But new estimates about YouTube's prospects for the coming year indicate that the labels' expectations about extracting money from the site are unfounded -- for now, anyway. The labels could be trying to squeeze blood out of stone.
Credit Suisse analyst Spencer Wang predicts that YouTube makes an average of 0.4 cents each time a video is watched. If his calculations are correct, the site will earn $240.9 in revenue this year. Meanwhile, its bandwidth, licensing, and operation costs will run upwards of $700 million. This year, if Wang is right, Google will lose $470.6 million on YouTube, for which it paid $1.76 billion in 2006.
As consumers switch from acquiring music to streaming it on-demand to laptops, entertainment appliances, netbooks and smart phones, labels have sought more aggressive licensing terms from YouTube and other on-demand music streaming services. After disagreements about what Google should pay per song streamed, Warner pulled its music videos from the site in January. Meanwhile, viewers in the United Kingdom and Germany can't watch major label videos on YouTube at all, due to similar licensing spats.
As much as the labels need YouTube, YouTube needs the labels too. Music-oriented videos constitute nearly 80 percent of the front page of YouTube's "most viewed of all time" list, while major labels Universal Music Group (over 3.8 billion views) and Sony BMG (over 603 million views) are the most popular YouTube uploaders ever to use the site.
In order for Google and music copyright holders to agree on terms they can both live with, something has to give. One answer could be for the labels to launch a joint venture with YouTube, the way they did with MySpace. However, a poll we conducted last month found that most readers thought a major label-only version of YouTube would not gain traction from music fans (119 to 34 against the idea, as of today)