YouTube, Amazon Start Playing Hardball With Sellers
The ascendance of digital media has given the Internet’s biggest distributors new market clout. And YouTube and Amazon are increasingly throwing their weight around with suppliers in disputes that are, to an unusual degree, public.
The YouTube brouhaha centers on its forthcoming music-subscription service, expected to launch later this summer. The Google-owned vidsite says it has landed pacts with 95% of the record labels it does business with worldwide, including the three majors: Universal Music Group, Sony Music Entertainment and Warner Music Group.
Now, YouTube is taking action against the indie-label holdouts: The service said it will begin yanking videos from music companies that have refused to agree to the terms of the music-subscription service — a move that has industry trade groups crying foul.
Meanwhile, Amazon.com last month stopped taking DVD pre-orders for upcoming Warner Bros. Home Video releases, including theatrical hit “The Lego Movie,” as the companies wrangled over contract terms. The parties resolved the dispute earlier this week. That standoff was similar to (if smaller than) Amazon’s ongoing battle with Hachette Book Group over e-book pricing, in which the e-commerce giant is delaying shipments of the publisher’s titles by up to four weeks and also not accepting pre-orders.
In many ways, these situations aren’t anything new: Suppliers and distributors have been feuding since time immemorial, with each side trying to get the best deal. In the digital music sphere, Apple’s iTunes won big concessions from labels years ago, including the ability to sell songs a la carte instead of in a CD bundle.
But the latest spats reflect an interesting stage in the evolution of digital content, with Apple, Amazon and Google emerging as a troika of content powerhouses. “They’re each fighting to own the customer, and to wear the trousers in relationships with media companies,” said Mark Mulligan, analyst with U.K.-based Midia Consulting.
YouTube characterizes the dispute with unhappy indie music companies, which are essentially seeking to get a bigger cut, as business as usual. But by removing videos of the companies with which it’s in dispute, YouTube could risk fresh scrutiny from regulators. Companies that have not signed on to the YouTube service include XL Recordings, whose artists include Adele; and Domino, whose roster features Arctic Monkeys.
“YouTube is a big deal,” said Rich Bengloff, president of the American Assn. of Independent Music. “Their importance from a promotional as well as a monetization standpoint exacerbates the problem.” The group, which reps about 330 independent labels, has appealed to the Federal Trade Commission to intervene and prevent YouTube from blocking their content.
In a statement, YouTube said its overriding goal is to make the service better for all music constituents, including fans, artists and labels. “We’re adding subscription-based features for music on YouTube with this in mind — to bring our music partners new revenue streams in addition to the hundreds of millions of dollars YouTube already generates for them each year,” it said.
YouTube has not announced pricing for the ad-free music subscription service, which is being designed to also provide offline access to songs across multiple devices. YouTube’s subscription music service will be integrated with Google Play Music All Access, the $10 monthly service introduced last year, according to sources familiar with the plans.
The offering will face a host of competitors, including services from Apple, which recently acquired Beats Entertainment for $3 billion; as well as Spotify, Rdio and Rhapsody.
And Amazon is in the game, too. This month, it launched Prime Music, a service with more than 1 million songs available as part of the $99-per-year Prime free-shipping and online-video service. The company’s new Fire Phone, unveiled last week, completes the circle: The smartphone delivers Amazon’s media smorgasbord seamlessly, to keep customers inside the walls of its virtual store — potentially giving Amazon even more leverage in future negotiations.
Warner Bros.’ fight with Amazon likely didn’t harm the studio’s overall homevideo biz much. Except for its pre-order gambit, Amazon had continued to sell WB DVDs, as well as digital copies of the new releases. And rivals to the e-tailer abound, including everyone from iTunes to Netflix, Best Buy to Walmart. Warners also operates its own direct-to-consumer DVD business, WBShop.com.
But for Hachette, it’s a much different story: Amazon wields astonishing power in the book market. In March 2014, its overall share of new book purchases was 41%, with a 65% share of all online new book sales (both print and digital), per research firm Codex Group. Hachette announced this month that it was laying off 3% of its employees as the Amazon dispute dragged on.
“Why would Amazon turn around and bite the hand that feeds them?” wondered bestselling Hachette author Malcolm Gladwell, in a New York Times interview.
By all indications, Amazon believes that authors and publishers need its mighty online store more than the other way around. And in digital consumption of video and music, Amazon, Google and Apple are seeking to cement that equation.