Video Monetization and Digital Rights Management. October General Overview: YouTube dominance of the on line video market

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1 Video Monetization and Digital Rights Management Prepared for A2IM by Ron Schneier, COO North America Base79 With Contribution made by Doug Keogh, Robot of the Century October General Overview: YouTube dominance of the on line video market Music videos content can now be delivered freely to any IP connected device including internet TV, mobile devices, and computers. This advancement in technology will rapidly accelerate as television and mobile manufacturers produce devices that provide IP delivered content to the consumers. In this paper we have chosen to highlight YouTube which is the primary destination for discovering and watching videos including music videos. However there are several other platforms that offer good opportunities for distribution including Facebook, Yahoo, MSN, AOL, Daily Motion, and Metacafe. Facebook has significant potential to become an important destination for discovering music as artists and labels increase their outreach through this platform to build connectivity with their fans. A few interesting facts about YouTube which are quoted from YouTube's press statistics ( Over 3 billion videos are viewed daily 90 billion videos are viewed monthly of which 12 billion are monetized 48 hours of video are uploaded every minute, resulting in nearly 8 years of content uploaded daily YouTube is seen in 25 countries and 70% of traffic comes from outside of the U.S. YouTube mobile is quickly gaining traction with now over 320 million views per day Comscore, one of the two leading internet measurement service confirms the dominance of YouTube. In their recent July 2011 report, Comscore ranked Google (which is made up of primarily YouTube) as the number one video site in the U.S. with over 158 million unique viewers. By comparison Hulu achieved 24.3 million unique viewers or 15.3% of the Google audience. Of interest is VEVO's second place ranking. While significantly smaller then YouTube, this points out the strength of consumer's interest in watching music on YouTube. It is also interesting note that VEVO s audience is predominantly on YouTube (96%) which further strengthens the point that YouTube has become a primary destination for discovering music Comscore has also identified other key facts related to viewers engaged in watching video on line. Online video is consumed by 86% of all users who have access to the internet. Viewers watch videos on line an average 16 hours per month is the predominant demo for viewing videos on line followed by and Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

2 Top U.S. Online Video Content Properties Ranked by Unique Video Viewers July 2011 Total U.S. Home/Work/University Locations Source: comscore Video Metrix Property Total Unique Viewers (000) Viewing Sessions (000) Minutes per Viewer Total Internet : Total Audience 180,303 6,886,195 1,107.0 Google Sites 158,073 3,009, VEVO VEVO on YouTube 62,053 59, ,683 NA Facebook.com 51, , Microsoft Sites 49, , Viacom Digital 47, , Yahoo! Sites 46, , AOL, Inc. 42, , Turner Digital 29, , Hulu 24, , NBC Universal 21,823 59, Source: Comscore Video Metrix 2 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

3 2. Music Videos and YouTube This of course beckons the question; how many viewers are watching music videos on line? Nielsen recently presented their findings of a global survey this past March at Midem. Nearly 60% of the 26,644 respondents indicated that they have watched music videos in the past three months. However what is more surprising is the ratio of those who watched music videos (57%) to those that paid to download a music track to their computer (17%). A surprising 3x more consumers are watching music videos than downloading music on their PC! Music videos are also growing in popularity on mobile devices with over 20% of the respondents indicating they have viewed music videos on mobile phones. Source: The hyper- fragmented world of music, present by Nielsen at Midem, March 2011 There is now sufficent data coming from both within YouTube's playlist statistics and independent researchers Comscore and Nielsen to indicate that YouTube has become a leading platform for consumers to discover and enjoy music. By analyzing YouTube's top viewing charts one quickly sees that music videos predominate the top viewing charts on YouTube. Of the top five videos ever viewed on YouTube, four are music videos followed by Charlie Bit My Finger as number 5 all time! Of the top 25 most watched videos all time on YouTube, 18 are music videos. Clearly YouTube has become the place for music discovery and it is critical for the independent music industry to fully engage this opportunity. 3 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

4 3. YouTube: The challenge of UGC and claiming and monetizing your content Manage Your Rights or Someone Else Will! Online video platforms including YouTube make it incredibly easy for anyone to distribute sound recordings and music related video content regardless of ownership of the content. Sound recordings and video content can now be copied and distributed instantaneously over the internet. In some cases this can be an asset enabling content owners to reach greater number of fans more quickly. In other cases this can be detrimental and diminish rights holders ability to collect license fees and advertising revenues and control the quality of the content. So how can rights holders navigate this new environment and what services are available for managing digital rights? By far the greatest challenge that we see for the indie music industry is the ability to effectively claim and monetize one's music content whether it be a sound recording, concert video or official music video. It is common to find 50% of the total views to content owned by our clients assigned to either 1) other music labels or 2) users uploading unlicensed sound recording tracks. The user uploads or UGC combine sound recordings with videos from concerts or with home grown videos such as covers of albums, photos of artists and recordings off television programs. YouTube and other online video platforms do not directly take action against these unauthorized uploads. Rather, these online platforms leave it to the content owner or a licensor representing the content owner (such as Base79) to identify and claim the content in behalf of the record label company. Fortunately YouTube has provided an effective fingerprinting technology that enables content owners to find and claim their assets. Other platforms such as Dailymotion leave it to the content owner to use and often pay for an independent technology company to handle this important task. 4 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

5 A. Fingerprinting Technology/ Content ID system and Digital Rights Management YouTube's content ID uses sophisticated digital fingerprinting technology to identify and match video and audio files. Rights holders provide YouTube with audio and video reference files of their content, along with metadata describing the content and critical data such as publisher information, ISRC codes and territorial information. Once the match is made, owners can then decide what to do with the content including leave it up with their ownership, take it down, or leave it up with ownership and monetize. Sounds easy right? We only wish it was! There are four key challenges with the YouTube Content ID system: 1. Conflicts with other record label companies Record labels often have hundreds if not thousands of sound recordings that need to be matched. Once the match is found, it is quite common to have a significant number of conflicts with other record label companies (especially conflicts with the majors). This of course leads to contacting the party in conflict and asking this party to release the claim which of course can be very time consuming. For many indie labels, resources to handle these conflicts are limited and they rely upon service providers (see Appendix) to handle digital rights management. It should also be noted that VEVO does not provide digital rights management so if you are working with VEVO to distribute your music videos you will need to do manage claiming your assets yourself or use a service provider. 2. Your U.S. publisher needs to have a deal with YouTube In order to claim and monetize a U.S. owned sound recording, the publisher of the sound recording needs to have an agreement in place with YouTube. As of this writing nine publishers have agreements in place. However this will soon expand to include a majority of music publishers as the National Music Publishers Association who represent over 3,000 publishers recently announced a deal with YouTube and Google. For global distributors, publishing agreements vary by territory and extra care must be given to insuring correct publishing information by territory. For example in the UK, YouTube currently has agreement with all publishers while the opposite is true in Germany where very few publishers have agreements in place. 3. Metadata needs to be input and correct The Content ID system requires several key fields for metadata including owner of asset (record label), artist, album, track name, publisher of sound recording, ISRC code. Each of these fields need to be completed in the correct sections of YouTube's' CMS. If key metadata is not correct including publisher information and territorial rights then one s content cannot be monetized 4. The Finger printing Technology is not foolproof From our personal experience we have learned that the fingerprinting technology such as YouTube s Content ID system is not foolproof and can miss videos and sound recordings with sizable number of views. The problem is simply that technology cannot keep in front of the rapid growth of daily user uploads. As a result manual processes need to be in place to search and uncover assets that have been missed. 5 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

6 4. Distribution and Marketing Opportunities on YouTube While it can appear to be relatively simple to build a channel on YouTube and other platforms; it does take real effort and resources to build a professional channel that will engage your fans, build subscribers and generate meaningful viewership and revenue. To this point, we will focus on the areas that will have the most impact on building your fan base and viewership and provide recommendations on how best to market your artists on YouTube. A. Branding your channel and metadata There is a lot of debate on how best to brand your channel on YouTube. Our recommendation is to go with a brand that has the highest awareness with your fans. In most cases this will be the name of the artist. For some the name of the record label company is a strong brand and can be effective in driving viewers to their channel. The channel name is an important driver with the search algorithms on YouTube and therefore careful consideration should be given to what brand will generate the highest rank in search. Also make sure to effectively tag your channel page for optimization in search. Keep in mind that YouTube is the second largest search engine after Google. Use strong and relevant key words for channel description, profile, etc. Effective metadata for tagging videos is also key to high search returns and providing useful information for your fans. B. Think of your channel as retail space and build subscribers Create a professional look to your channel and then place your most compelling content first as the goal here is to keep your viewer engaged. Use your page as retail space and find ways to invite your viewers to take action. As an example with one of our clients Ultra Music, we have worked together to populate their channel with links to subscribe, Facebook and to the Ultra Store. It is important to grow your subscriber base as this gives opportunity for your fans to learn about new videos and to provide comments on the videos they have watched. Make it easy for your fans to subscribe by posting clear messages on your channel to sign up. Interact with your fans including making announcements about new videos and upcoming tours. Also ask your viewers to hit the like button and add to favorites as this will help improve the videos ranking in search. And don t forget to ask your fans to share their favorite videos! It is important to note that enhancing channel design will vary by platform and distributor. While YouTube provides a fairly wide degree for creativity, music videos distributed on YouTube by VEVO will incorporate the VEVO branding. C. Keep your content fresh Make sure to keep your content fresh by uploading new videos on a regular basis. Given the expense to produce new music videos think of creative and inexpensive ways to add new videos including backstage interviews and lyric videos. Adding new content on a regular basis will help build a higher search return and of course increase viewership. D. Expand your catalog Offer you fans more than just music videos! YouTube and other sites such as Facebook are all about social engagement. Your fans want to feel that they have a personal connection with your artist. For a relatively inexpensive investment consider producing back stage interviews or entertaining on the road clips. Also consider personal videos from the artist talking about subjects that would be of value to your fans such as personal interests, and anything that would be considered news. The key here is to make it personal and entertaining. 6 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

7 E. Cross promote Promote your artists on your channel space either above or below the video to build links to other videos. Also, work with other channels to cross promote your artists by displaying in the recommended videos section. F. Playlists Organize your playlist to feature your most recent videos as well as your most viewed videos. Organize your favorites with the highest viewed videos and videos with the highest number of likes. G. Sell Your Music! Many online video platforms make it easy to sell downloads of your music. For example, on YouTube, record labels can connect their fans to itunes and Amazon by adding the ISRC codes with your metadata. Indie labels can also promote direct sales by building links on their channel page. 5. Monetization opportunities for rights holders and how can I make more money on YouTube and other video platforms? The challenge for content partners has been to generate meaningful ad revenues on YouTube and other video platforms. Many content owners including indie labels often receive payments from platforms that are quite modest. In this section we will focus on best practices learned from our experience on increasing ad revenues. There are four key factors that impact how much revenue you will generate: The price paid for the advertising on your content. The number of viewers who watch your official videos. The number of viewers who watch your videos that have been uploaded by your fans and how effective you have been in claiming your assets (UGC). The sell- out rate associated with premium advertising. A. The price paid for the advertising associated with your content Probably the least understood factor in understanding ad revenue on YouTube is the price paid for the advertising. This information is not readily available from YouTube as advertising pricing is kept confidential between buyers and sellers. The following information will serve to provide general insights on advertising prices for music videos. Before we begin this discussion it is important to understand the metric used for pricing advertising. The metric is called Cost per Thousand (CPM) and it is calculated by multiplying the price paid per 1,000 viewers. For example if the CPM is $2.00 then the advertiser is paying $2.00 per every 1,000 viewers. If you deliverer 100,000 viewers and the CPM is $2.00 then the price paid for advertising is $200. This is calculated as follows 100,000/1,000 = 100. Then $2.00 x 100= $200. There is a wide range on pricing for advertising on YouTube which directly impacts how much revenue you will generate. To simplify we have broken this out into three tiers. Ad sense: Ad sense is an auction based sales business for Google that sells display advertising and in stream (pre roll, mid roll) to the highest bidder. Ad sense is the lowest CPMS of the three tiers. However the majority of Google s ad sales on YouTube for content partners are through ad sense which is the primary reason for modest 7 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

8 revenue for the content partners. Gross CPMS often range between $1.00 to $4.00 for display and between $6.00 to $8.00 for pre rolls. YouTube direct sales: Although much less common YouTube ad sales staff will sell pre roll advertising associated with content distributed by partners. The YouTube rate card for the premium pre roll is $20.00 Gross. Given that this is relatively rare to see revenues generated from the premium sales, content partners often do not benefit from these higher CPMS. Ad Sales organizations: There are only a few rights holders who can sell advertising on YouTube. These organizations focus on selling premium pre rolls at a $20.00 gross rate card and $6.00 to $8.00 gross rate card for display advertising. B. The number of viewers who watch your official videos. Pre rolls can primarily only run in official videos as opposed to UGC content which in most cases can only accept display. Given that the price for pre rolls is significantly higher than display, indie record companies should focus first on building audience to their official videos. C. The number of viewers who watch your videos that have been uploaded by your fans and how effective have you been in claiming these assets (UGC). UGC content primarily accepts the lower CPM display advertising. However, it is still a good opportunity to generate revenues especially for record labels with large sound recording libraries. The key here is to insure that one has effectively claimed all UGC assets. We have seen increases by +50% in total views by effectively claiming UGC content. D. Sell out rates associated with premium CPMs. Content owners should focus on how best to optimize revenues through the combination of high sell out rates with premium CPMs. As an example, let s do the math that compares low sell outs at modest CPMs to high sell outs at premium CPMs. For the purposes of this comparison calculations are based on Gross CPMs and 5 million available ad impressions. The low model projects revenue of $15,750 while the high model estimates revenue of $85,000. These models do not reflect net payouts to content owners and actual net payments of course will be dependent on revenue splits with YouTube as well as independent sales organizations. However, the models do point out that that content owners have the opportunity to generate significant more ad sales revenue through aligning with sales organizations that sell premium advertising at higher sell out levels. High Revenue Model Premium CPMs $20.00 at high sell out level (85%) 5,000,000 impressions x.85 sell out = 4,250,000 ad impressions 4,250 x $20.00 = $85,000 in potential gross revenues Low Revenue Model Low CPM ($7.00) at low sell out level (45%) 5,000,000 impressions x.45 = 2, 2250, 000 ad impressions 2,250 x $7.00= $15,750 in potential gross revenues 8 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

9 6. You Tube Monetization for Independent Publishers Prepared by Doug Keogh (Robot of the Century) While compulsory mechanical rates for audio- only streaming were established by the Copyright Review Board (CRB) in 2008, no such rate has been established for the sync rights for video streaming. The mechanical rights for video streaming have certainly been established, as has a performance right for the online streaming of compositions synced with video. However, each audio recording of a composition that is synced with video needs to have rates established for streaming, either with the digital platform, or with the record label that owns the master and has created the video ("Official Videos"). These rates are generally a percentage of the revenues paid to the label, but could be determined by a license between a publisher and the online platform. Other video sync areas (video downloads, DVD sales, etc.) are also subject to a specific rate per sync, and without compulsory rates, a general inefficiency exists in most video monetization for indie publishers. There are two types of videos on YouTube that include music: Official Videos and User Generated Content (UGC). Anything that is not an "Official Video" delivered by the master rights owner under their deal with YouTube is considered UGC, even the now popular lyrics videos that are often supplied by the labels. The mechanical rights for Official Videos and UGC are the subject of two distinct royalty flows. Both UGC and Official Video royalties are based on a percentage of advertising revenues associated with the streaming of each particular video. A. Mechanical Right UGC Nine publishers, including the major publishers, have established licenses with YouTube that cover User Generated Content, but there are so many publishers whose rights need to be licensed for a digital platform like YouTube to cover all its content, that it would be impossible to license each publisher directly. So, much of the UGC content on YouTube has been unlicensed, which led the NMPA (National Music Publishers' Association), to file a copyright infringement lawsuit against YouTube on behalf of several large independent publishers. In August 2011 the NMPA announced a resolution of this lawsuit, and that indie publishers will have the opportunity to enter into a standard license. No rates have been announced, and retroactive royalties have not been publicly addressed, but the NMPA has said that the Harry Fox Agency (HFA) will be the administrator of those rights under the new license agreement. Independent publishers will need to make sure that all of their compositions are properly registered in HFA's database for their royalties to be accounted properly. A publisher does not need to be a client of HFA to register their songs with them. The major labels, as well as many indie labels (usually through their digital distributors) have licenses in place with YouTube covering UGC, but unlike Official Videos, publishing royalties are not included in the royalties paid to the labels. However, unless full publishing information, including publisher and writers shares in each composition, is supplied in the metadata to YouTube by the digital distributor or label, no royalties will be paid out to the label. So, the labels through their distributors are taking steps to ensure that their metadata includes the proper publishing information, providing for a royalty flow for both the label and the publisher, once the publisher has agreed to the forthcoming standard license being established between the NMPA and YouTube. Presumably, the publishers who have previously entered into licenses with YouTube that cover UGC, have been receiving these royalties. B. Official Videos Official Videos have greater opportunity for ad revenue both because of their relative popularity on YouTube, and through the establishment of platforms for advertising sales - video channels for the label or artist as well as VEVO. Suppliers of video to YouTube have the opportunity to sell advertising, as well as benefit from YouTube's offerings directly to advertisers. It has not been clear to many independent publishers, nor to many of the labels, but the publishing royalties generated by Official Videos are paid through the labels supplying the videos, and a rate needs to be established between the label and 9 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)

10 the publisher - the percentage share that should be paid through to the applicable publishers. The major labels and the major publishers have agreements in place setting this percentage rate for their common properties, and some of the larger indie publishers have also negotiated these blanket licenses with the major labels, but if a video rate is not covered by those agreements, a rate needs to be established. Some newer artist contracts, under controlled composition clauses, have general video rates included, which could apply here, as well as to royalties generated by the sale of physical products like dvds, and video downloads. If the majors' blanket license rates, or a controlled composition rate from the artist's recording agreement are not in place, the rate needs to be negotiated between the label and the publisher. Sync licenses for Official Videos are the established type of license to set these rates, but they have been rarely used - usually only when a video is made for a cover song. Even so, most of the video sync licenses in place have not anticipated the need for a percentage split of this type of revenue. They are usually based on transactional sales, physical sales units and downloads, rather than streaming of videos. Rates are established as the greater of a penny rate, or a % of the retail or wholesale price. In practice, labels have been using the percentage applied to the price as their basis for sharing video streaming revenues, but the publisher can and should establish a rate specifically for video streaming royalties. C. Performance Right Both UGC and Official Videos on YouTube have an established performance right, and those rights have been licensed by the three Performing Rights Organizations (PRO's) in the US: ASCAP, BMI and SESAC, on behalf of their member writers and publishers. So, all publishers should be receiving performance monies from YouTube and other video streaming channels, through the applicable PRO. As with other performance monies, the writer's share and the publisher's share are accounted separately. 7. Summary YouTube and other social platforms provide an important and sizable opportunity to engage fans, build audience, promote artists and generate incremental revenue. By far the greatest opportunity is with YouTube, as this social platform has become the place for discovery of music. To be successful companies need to dedicate resources with internal staff or work with independent partners to maximize revenues. It s a new world and a terrific opportunity to build new revenues while building a deeper connection with your fans! About Base79 (formerly myvideorights) Base79 is unique: We provide 360 degree service that includes both actively managing digital rights and selling premium advertising for independent record labels. This combination provides record labels an opportunity to fully claim their assets and generate significantly higher revenues on YouTube and other social platforms. Base79 is the expert in actively managing and monetizing professionally produced online content including music videos and sound recordings. We protect proprietary rights, increase viewership and generate incremental revenue for record labels and artists. The company currently drives more than 375 million views per month worldwide across multiple platforms including YouTube, Facebook, Netflix, Daily Motion, and Metacafe. Clients include Ultra Records, Ministry of Sound, Robbins Entertainment, Sunflower Entertainment, Next Plateau, Defected Records, and A&E Television Networks. Producers are able to maximize their video assets and brand awareness without investment and internal bandwidth while advertisers benefit from targeted placement within safe, engaging, premium content. Base79 has offices in New York City and London. For more information, visit or us at ron.schneier@base79.com 10 Prepared by Ron Schneier of Base 79 for American Association of Independent Music (A2IM)