The trade value of the global digital music market currently stands at a robust $4.6 billion, and digital sales account for 49 percent of all music sales in the United States, according to the International Federation of the Phonographic Industry's 2011 "Recording Industry In Numbers" report. On the flip side, in its 2009 report, the organization estimated 95 percent of all music downloads were illegal, with no compensation going to music creators.
Arguably, the music industry's well-documented struggle with piracy has never been a technical problem, but a business model problem, one that traces back more than a decade to the illegal file-sharing service Napster.
But the music industry is now showing signs of formulating a successful business model solution, generating revenue from content that has been traditionally considered infringing activity, while still respecting the copyrights held by music creators.
While there are many examples of this effort across the Internet, perhaps the two with the greatest potential impact are YouTube's Content ID system and the iTunes Match feature of Apple's impending iCloud service. Both models seem to find an elusive happy medium in providing both convenience to the music fan and revenue to the rights holder.
As YouTube gained quick popularity after its official launch in late 2005, record labels and music publishers fretted about the widespread use of copyrighted music contained in videos users were uploading. If users shared a video that contained music as either the background soundtrack or as the main feature of the video (such as those infamous lip-synching videos that defined the service's early days), they would have needed to license the music from the label and publisher directly, or YouTube would have to remove the video if they were served with a takedown notice.
In a turn of events, YouTube struck a deal in 2007 under which it pays the labels and publishers for the rights to the music on behalf of their users. As part of that deal, YouTube launched Content ID, a technology designed to scan every piece of content uploaded to the system, identify when copyrighted content is included, and then apply a set of pre-defined rules on how to deal with that content. Either YouTube must block the content, or monetize it by placing ads against the video or adding links to buy the song at Apple's iTunes Store, sharing the revenue with rights holders in every case.
"We took what could have just been a liability and turned it into a new source of revenue," says David King, head of content identification and licensing for YouTube.
According to King, more than 100 years worth of video is uploaded to YouTube every day, with each upload scanned for both video and musical copyrights. In the music category, flagged uploads are compared to the 5 million songs in the Content ID database, and when identified, determine the rights holders that must be compensated, which can vary by country.
While the system had its hiccups in the early days, it's proven to be a long-term success. According to a report in April, between one-third and half of the money YouTube pays rights holders every month comes from revenue collected from user-generated content, as opposed to official music videos record labels place on the service, three times the amount paid in 2009.
King says more than 120 million videos on YouTube have been claimed by rights holders, and almost all of them are monetized with ads rather than blocked for infringement. Arguably, the most well-known example is the "JK Wedding Entrance Dance" video featuring Chris Brown's "Forever" as the soundtrack. The video went viral and has passed more than 68 million views.
"We have 120 million of these stories," says King. "They're just not all as perfect."
Equally, if not more, important to the music industry is finding a way to recoup the massive losses stemming from digital piracy. A significant test will come in the form of Apple's iCloud service, which is scheduled to launch this fall. Along with the service's ability to transfer any iTunes-purchased song to any Apple-built device, a feature called iTunes Match will scan user's music libraries for non-iTunes purchased music and make a copy of those songs available for transfer. The iTunes Match feature will cost $24.99 per year.
The eyebrow-raiser here is that many of the songs in users' libraries may be tracks obtained from illegal P2P services. There was a time when major record labels would have demanded Apple block those songs from iCloud as part of their licensing negotiations. Instead, they've now potentially found a way to monetize piracy.
"It could be seen as a surprising reaction," says Jeff Price, president/CEO of digital distribution firm TuneCore. "You can't stop [piracy's] progress, so here's a way to monetize it. What are [the labels] going to say, they don't want the money?"
How financially impactful iTunes Match will become is debatable, with many industry sources not expecting anything significant in at least the short term. But what's more important is the precedent set by the music industry working together with the technology industry to solve a common problem.
"iTunes Match is simply about convenience to the consumer," says Price. "But for copyright holders, it's revenue generation. These two disparate ideas of convenience and revenue generation off copyright are finally being linked."
Both the YouTube and iCloud cases show what can be accomplished when the music and technology industries treat each other as partners.
"This really represents an opportunity," says King. "If the music industry and companies like YouTube and Google really cooperate, together we can build the new future."
(Antony Bruno is the executive director of digital/mobile content & programming for Billboard magazine. He previously worked for the mobile industry trade publication RCR Wireless News, and served as assistant VP of wireless Internet development for CTIA — The Wireless Association.)