The Future of Streaming:
What Pandora and YouTube’s Respective Deals with Record Labels Means

What Pandora and YouTube’s Respective Deals with Record Labels Means
By Russel Cooke

Online music streaming has become big business. After years of lurking on the ever expanding horizon, increases in bandwidth and processing have made live, mobile internet music streaming finally competitive with radio. That it took so long to eclipse such an old technology is a remarkable testament to the durability of radio. Now that the age of internet music streaming is here, the time to truly integrate it within the music industry has come.

Because the fact is, for years, all music streaming services had the same, common problem: they were locked in an eternal struggle with record labels. How they choose to interact with record labels in the future, major labels and tiny independent presses in backwater towns and forgotten corners of the world, will determine the future of the music industry. Pandora and YouTube, today two of the biggest players in online music streaming, both recently signed deals with labels. How’s the future look?

First, a bit of context. YouTube, as we all know, is the largest video streaming website on the internet, and indeed the internet’s second most visited website in general. But it took approximately zero seconds for users to start using it as a place to share music videos, or just blank videos with songs as the audio track.Pandora, on the other hand, is a born and bred music streaming service. You feed it a song that you like, and it uses a complicated preference algorithm to calculate a playlist of related songs for you to listen to based on other people’s listening habits. You can further refine your playlist by rating songs, and giving it more information about your personal preferences that it uses to determine the next songs.

Both services have since had to deal extensively with record labels, which they ended up doing in very different ways. They both introduced advertisements and forms of copyright protection. Both have also recently signed major deals with record labels. Both happened to take opposite sides on the debate, Pandora positioning itself on the side of independents, YouTube siding with the major establishment labels.

Pandora: For The Little Guy

Pandora has decided to sign a deal with Merlin, a sort of consortium of independent labels of which some 20,000 have membership. In August, Pandora signed that deal with Merlin, solving the royalties dispute that has plagued the service since its inception. It allows labels to negotiate directly with Pandora about royalty payments. For its part, Pandora managed to win access to the sales data from all these labels, and hopes to further refine their recommendation engine with it.

YouTube: Going Corporate

YouTube has taken a decidedly different path. It seems to want to become an establishment player in the recording industry, and has sought inclusion in the big boys’ club. It’s signed deals with major labels to release a subscription based streaming service. The deal virtually locks out independent labels, giving them no power to negotiate with YouTube.

Taking Sides

The lines have been drawn. Is Pandora the savior of independent music? Is YouTube the new RIAA? The battle between major labels and the forces of independent distribution raged through the 90s (remember Napster?). Now it’s clear that the war will continue. Who will come out on top?

Russel Cooke is a business consultant specializing in customer relationship management. In his free time, he contributes predominantly business related articles, something he enjoys doing tremendously.