The War Is On Between YouTube And Indie Artists

There's a growing concern among independent music artists that the major record labels and the Internet giants that favor them are squeezing the smaller players out of the marketplace, The New York Times' Ben Sisario reports.

One of the bigger and more recent issues surrounds YouTube's upcoming paid music streaming service, which will reportedly have a free version and a $10 premium version that's ad-free and provides offline caching of songs.

A YouTube representative confirmed to Business Insider that record labels representing 95% of the music industry have already signed up to join YouTube's new service, but 5% of the industry has yet to sign YouTube's new contract because the artists reportedly don't agree with its terms. As a result, YouTube has decided to effectively block any independent artists that don't sign up for its new service, The Financial Times reports.

YouTube would not provide a copy of its contract, but Digital Music News on Tuesday published the alleged contract in its entirety.

One of the contract's more controversial clauses says if a major record label agrees to any royalty rate that's lower than the rates given to an independent label, Google can lower the independent label's rate accordingly, after a 30-day notice (likely an email).

Furthermore, YouTube's contract also requires an artist's entire catalogue be available for the company's free and non-free streaming services; artists can't choose individual songs or albums to withhold, or opt out at all.

A source close to YouTube told Business Insider the deal will not affect regular users that post their own songs and videos on their own channels, but it will affect musicians signed to multiple record labels in multiple countries. So if Artist X from the UK is signed to their friend's indie label in their home country, but also signed to a major record label in the U.S., users will be able to watch the video in the U.S. but not the UK.

And so, the indies are fighting back.

Darius Van Arman, co-founder of the Secretly Group that boasts independent artists like Bon Iver, will speak in front of a House Judiciary subcommittee on Wednesday in part of a larger hearing on music licensing. Van Arman provided a statement to the subcommittee before the hearing, which says, "the three major recording companies have become proficient at extracting a disproportionate share of copyright-related revenue from the marketplace."

The indies also have a problem with how major record labels compute "market share." According to Van Arman, the big record labels are overstating their share of the music market by counting the records they own, but also the records they distribute - which are actually owned by independent artists. But since these big labels have large subsidiaries that manage hundreds of indie artists, it remains a murky gray area.

But here's why this market share issue is important: Record labels, be they big or independent, use market share as leverage in licensing negotiations with digital services, like YouTube. And since the big record labels have an "inflated share," according to the independent artists, they can demand higher royalty rates, large advance payments and even minimum guarantees. Indie artists, in their estimation, don't get the same opportunities to succeed in the online music sector.

Alison Wenham, CEO of the Worldwide Independent Network, an umbrella group for small record labels, told The New York Times the online music marketplace has become "a privilege affordable only by the biggest and richest players."

"In the growth of the Internet, what was to be a utopian leveling of the playing field, a democratization for all, what is actually happening is a form of cultural apartheid," Wenham said.