Late last week, Warner Music Group announced that it had renewed a licensing deal with YouTube — and that it wasn’t happy about it.
Time to hear what YouTube has to say. For this we turn to Lyor Cohen, the man YouTube recently hired as its emissary to the music industry.
Cohen’s move to YouTube surprised many people, in part because for years he had been one of the people demanding more from Google’s giant video site. Cohen started out in the music business as a hip-hop manager, working with the likes of Run-D.M.C. and the Beastie Boys, and spent decades as a top label executive — most prominently at Universal Music and Warner Music.
Cohen says he was surprised to hear Warner CEO Steve Cooper complain about the deal. He says he thinks Warner, and the rest of the music business, want YouTube to succeed at building a subscription music service that will rival Spotify and Apple Music.
And he says the Warner deal will help YouTube sell that service globally — at least in countries where people can afford to pay for music. Those that don’t will generate money via advertising.
The idea is to grow the global music industry pie. Or, as Cohen puts it, to “bring more cake to the party.”
I spoke to him over the weekend. There’s an edited version of our conversation below.
Before we get to that, here’s the picture of Cohen I was going to run at the top of this story, but then decided it would cause unnecessary confusion when paired with the headline. Still, it’s a great photo and useful document. Like the one I used up top, it was taken with Chance the Rapper at a YouTube-sponsored Grammys party in February:
Peter Kafka: Normally when someone announces a deal, they say they’re happy they have a deal, and that’s about it. This is the first time I’ve seen someone say “we have a deal and don’t really like it.” Did Warner tell you they were going to put this memo out?
Not at all.
What was your reaction when you saw it?
I was surprised, because it’s not been the context or the tenor of the negotiations. I’ve been in the bunker with them, and I’ve been really impressed with how Steve and his team have been thinking about it. This deal is centered around their vision of helping us build a subscription business. And them encouraging us building the advertising business.
So this deal enables us to continue growing our subscription business around the world. And ultimately, the key to the industry — to them, to artists — is if we can identify those consumers that are most likely to be shepherded to a higher [average revenue per user], that would be great.
We’ve talked over and over and over again how our business — I still feel part of this business — is going to return to growth by subscription and advertising, living side by side one another.
I didn’t hear anything about safe harbor, or any of that stuff ... I do know about the numerous conversations we had about them helping us, enabling us, to run this horse and to be successful. Because they would like a company the size of Google, [with] the international breadth of the company, to get into the subscription business. I don’t think they want their revenues highly concentrated.
Are the terms of the new deal significantly different than the older deals?
I don’t feel comfortable discussing any aspects of the terms.
But when you’re saying this deal allows you to have a subscription business — you already have a subscription business. Is there something else?
The expansion around the world. We need the rights in order to continue expanding around the world.
So you can sell this to someone in India or some territory you haven’t been selling it in.
Yeah. I would think India would primarily be an advertising country before it turns into a subscription country. You know, there are countries that are struggling to feed, house and shelter their citizens. So I doubt that they would be interested in a $120 yearly subscription. But they may pay with their eyeballs.
Does the Warner deal mean Sony and Universal will re-up soon as well?
I’m encouraged by all the conversations that we’ve had. They recognize that YouTube has paid, in 12 months, over a billion dollars in advertising revenue alone. And they see subscription growing faster than any subscription category ever, alongside that. Remember there used to be an argument, a year ago, that our advertising funnel, was retarding the growth of subscription. And meanwhile we just saw that it’s breaking all the records.
When I talk to the people at the music labels, I hear arguments that sound like Steve Cooper’s: They feel like they have direct relationships with companies like Spotify and Pandora, and they could take their music down from those services if they were unhappy with those relationships, and they don’t have that at YouTube. That seems to be a fundamental frustration.
I can tell you that I would not be at a company that doesn’t do three things: Respect artists, and labels, and be committed to building a subscription business where they could identify the most likely users to shepherd them to a higher ARPU, via subscription. Period.
When Julie [Greenwald, a Warner executive who has worked with Cohen for years] found out I was getting this job, she said, “Do me a favor, take the lowest-hanging fruit,” and that is the whole album, bad actors, that are on top of the search [making it easy to find free full albums on YouTube posted without the approval of musicians and labels].
So in my first week, I went to locate where the Content ID organization [the group that runs YouTube’s program that lets copyright owners find their stuff on the site, and either take it down or receive a cut of ad revenue it generates] was housed. And I found them in Zurich. So I got on the plane.
And I was blown. Away. Like, blown away. These were the world’s brightest, finest engineers. Young. Really young people. Who were thrilled to tackle bad actors.
When I told them about the albums, they said, “Yeah, they jumped over our Content ID by speeding up the tempo of the music, slightly. We’ve already got a solution for it.” I had them walk me through the process. I felt so proud that I could really talk to people in the industry that had this feeling about Content ID, and finding bad actors, and confidently say, “We’ve got a team that is dedicated to fixing this.”
The more we frustrate bad actors, the more we can stop cottage industries. They’re just going to give up, at a certain point. And I think the industry will feel really good about that.
You’ve been at this job for a few months. You’ve been in the music industry for decades. What has surprised you now that you’re on this side of the table?
God, I love that question.
I really had my guard up coming into this. Because I thought that I would bump into primarily engineers, that would look at me, as a person from old media, and would have that cynical view [of] my industry, that has suffered for the last 18 years, and blaming us for what happened. Instead, I found that this organization is filled with music junkies that actually want to be enablers of a new model. And be considered as the friend to artists and labels.
And we’re going to build really fantastic new tools for the labels. We’re going to surface up their priorities and have their input on what’s important to them. And it’s not just simply going to be run by machines.
Do you know that 80 percent of all of watch time is recommended by YouTube? That’s one of the biggest misconceptions. Everybody thinks that all the music that’s being listened to and watched is by search. That’s something that I’m not sure why it got lost in the sauce, but that’s a really important and powerful thing. And so far, we haven’t taken the labels’ and artists’ input of what’s important, and what’s a priority, and have it surface in the recommendations. And that’s going to start happening .
We’re going to also imagine things. When a billion customers a month come to some place, we gotta start flexing. What is the opportunity for the artist, what is the opportunity for the labels, to delight those customers.
We’ve got a project we’ve been demoing with Live Nation with ticketing and merchandise — to finally bring more cake to the party. And it’s going to be a real healthy experience for all of us.
“Delighting the customer” is a very tech phrasing. So you’ve got that down.
I don’t know what else to say. It makes perfect sense to me. We’re all basically on the same side.
I think that we need to ... I just want to remind you [of] when another service [Spotify] was being pounced on, constantly, that they were ruining the download business, and that they’re not paying enough.
That tune has changed. It wasn’t the fact that they weren’t paying enough. It was the fact that the cake wasn’t big enough. This whole industry’s ability to get back to growth, is going to be growing advertising, and growing subscription.
This article originally appeared on Recode.net.