Facebook’s music video streaming showdown with YouTube

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Facebook’s music video streaming showdown with YouTube

As Facebook completes a series of deals with the world’s largest music companies Universal Music Group, Sony Music Entertainment and Warner Music Group, the complex threads of the music industry’s interactions with streaming platforms resurfaces. The deals are likely to give Facebook (potentially exclusive) rights to air select music videos on its own social media platform. This move is significant for two reasons. Most obviously it catapults Facebook into YouTube’s video streaming territory, but perhaps even more importantly it adds a new dynamic to the already complex relationship between the music industry and its main avenues of digital distribution. To understand what this means for Facebook, YouTube and the music industry we need to understand the role each stakeholder plays in the current flow of creation to distribution. Let’s start with the music industry. 

Today, music videos have become an indelible part of the music experience. While the concept of music videos dates back to the musical short films of the 1920s, the form familiar to modern audiences reemerged in the 80s when television channel MTV popularised the video medium. Since then we’ve had iconic tracks with equally iconic music videos – the visuals of videos like Michael Jackson’s Thriller rooted in pop culture history. This brings us to the music industry today, where each track or album is an experience that reaches audiences through its auditory and visual appeal. 

Given that the video is a direct representation of the artist in an era of artist-centric fan bases, the video is almost as integral to the track’s performance as the track itself. For this reason, the video format of music has become one of the most sought after avenues of revenue generation for platforms like YouTube that are able to leverage the high-quality productions as advertising real estate. 90% of YouTube’s most viewed videos are music videos amassing well over tens of billions of views in total. So where does the straightforward process from content creation to content distribution become complex? When we get to compensation. We can break down the incentives of all the stakeholders we’re going to be discussing as aligning with one or more of the following three factors:

  1. Discovery 
  2. Distribution
  3. Compensation 

The music industry takes care of production, discovery, distribution and compensation in its own right. But in an increasingly digital native era, it relies heavily on streaming platforms to consolidate its discovery, effectively distribute its content and satisfactorily compensate it for the production of content and the artist reputation it provides. The complications arise when streaming platforms are not able to meet one or more of these three requirements – specifically when it comes to compensation. The music industry has had contention over royalties and licencing with all of the streaming services we’re going to discuss – the nature of their issues and the response strategies of the platforms informs our current landscape and the unique positions of each player. 

Spotify:

Discovery – adequately provides discovery, working on marketing innovations to further optimise this
Distribution – large pervasive user base
Compensation – contention over royalty fees and payments on free user streams

YouTube:

Discovery – one of the main modes of discovery, many artists launch their music here from official accounts
Distribution – large pervasive user base
Compensation – music consumption through YouTube not commensurate to return for the music industry, according to music companies. Former UMG executive (current Apple music executive) Jimmy Lovine – “[YouTube represents] 40% of consumption of music and 4% of the revenue, that’s a problem”

Facebook:

Discovery – Through existing ecosystem and social virality, yet to build a video-specific interface
Distribution – Social network-based virality consolidated through community building 
Compensation – Partnering with music companies and artists for exclusive rights, offering financing options and increased exposure through platform

As Facebook ventures into music videos, it is very aware of the challenges it faces in siphoning music time away from the comprehensive experience available across Spotify and YouTube. Unsurprisingly it’s offensive strategy is focused on creating a better relationship with the music industry than its competitors, approaching artists and music companies for exclusive rights and even offering financing and marketing for the video productions. Given the pervasive nature of Facebook’s user base, it is arguably a very viable competitor to YouTube when it comes to discovery and distribution. While YouTube’s aggregated, video only focus gives it an upper hand in discovery as opposed to the more sporadic nature of Facebook feeds, Facebook’s strength lies in distribution. 

The social nature of Facebook more easily lends itself to community building and fan congregation around the music videos (and videos more broadly), supercharging distribution and discovery. On an earnings call CEO Mark Zuckerberg acknowledges that this “is just a lot harder to do on a YouTube or a Twitch or other products like that”. Given that Microsoft recently shut down its gaming streaming service, Mixer, and ported its partners to Facebook its quite likely that Facebook’s pivot toward video does eventually give rise to a more intuitive video-friendly interface – or at least an organised section within the existing ecosystem. 

Facebook, YouTube and Spotify: different tiers of user interactivity

As Facebook looks to compete with YouTube, Spotify seems a peripheral concern given its audio-first focus. Spotify users are known to spend hours at end on the platform, a byproduct of audio consumption and its ability to be multitasked. For this reason, Spotify has never really been incentivised to introduce video streaming to its platform. But in its most recent app iteration, there is a hidden feature in which Spotify engineers are experimenting with a video tab on the now playing screen. But currently, the landing page only features a message “Thanks for your interest in video. We’re still exploring what could happen here”. While Spotify has the potential to become a one-stop-shop for audio and video music, the only hurdle that comes to mind is the lack of interaction around the content. Spotify, YouTube and Facebook sit on separate tiers of interactivity and ability to foster community engagement which seems imperative to becoming a one-stop-shop for both formats of music. 

Tier 1: Interactive and social – users on Facebook can comment, share, congregate in closed or public groups, conduct live streams and integrate closely with family, friends and social circles. Interaction is directly tied to video content through all of these features. 

Tier 2: Discrete interaction – users on YouTube can comment, share videos to other platforms and subscribe to channels. Interaction is tied to video content through the comment section. 

Tier 3: Secondary or non-interactive interaction – while users on Spotify can share activity, subscribe to playlists and see what their friends are doing, this is very much a secondary function of the application with little visibility and therefore ability to foster communities. 

If Spotify moves ahead with any music video features, whether it opts to seek its own video rights like Facebook or embed YouTube videos will play a role in further shaping the existing dynamic between the streaming sites. Given Spotify’s audio focus, for the time being, we can expect to see most competition on the video front take place between Facebook and YouTube. Despite creating an edge when it comes to compensating the music industry, winning users is the ultimate end game for Facebook. Music videos are frontrunning its broader video strategy, as the social giant expands into YouTube territory it will need to play to its distribution strengths rather than mimicking YouTube’s video aggregator format. 

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