REVEALED: Google's proposed indie music-killing contract terms

A leaked version of one of YouTube's controversial secret contracts with independent record labels has been published for the first time - and it appears to be stuffed with clauses that could land Google in trouble.

Google wants to launch a new Spotify-style streaming service under its YouTube brand, and so requires music labels to sign new contracts with it. A leaked copy of one such contract reveals that Mountain View proposes to block indies who refuse to sign the new contracts from YouTube's video service - which is the de facto global digital jukebox

In short, the move will preserve Google's illegal supply chain by cracking down on its legal supply chain.

Added together, independents claim they would be the second largest music label in the market, behind top dog Universal Music, and larger than the two other majors: private equity-owned Warner Music, and Sony. The independents referred the new contracts to the European Commission, claiming that Google had refused to bargain collectively with the independent licensing agency Merlin and instead offered individual labels far inferior terms, with what they claimed were coercive clauses.

One of those proposed contracts has now been published in full at industry blog Digital Music News, in a move one of their commenters called "pretty gangster".

Under the terms of the published version of the contract, indies must promise not only to never sue Google - under a “Covenant Not To Sue” - but give immunity to punters who continue to upload the label's own material to YouTube's massively popular video service.

Why does this matter? Getting your stuff taken down from YouTube is hugely costly and in practice, almost impossible, thanks to "safe harbour" provisions designed to protect ISPs and other service providers in the mid-1990s, when the public internet was in its infancy. It requires an individual URL-by-URL take-down notice to be filed for each infringement. Google can continue to monetise the label's music via YouTube, even without the label's permission.

It's been called "Notice and Shakedown", and tiny indie companies can ill afford the resources to do it. As DMN publisher Paul Resnikoff explains:

It’s virtually impossible to actually remove your content from YouTube, especially if you have a smaller (ie, indie) budget… The reason is that YouTube plays by the DMCA, which of course forces the content owner to claim and demand a removal. Once you cannot upload your official versions, then you are dealing with endless crappy, low quality lyrics videos that are often monetized by someone else if not policed properly. And, usage patterns show that everyone goes to those videos if the official video isn’t uploaded fast and first.

In theory Google has a content ID system that could block the unlicensed uploads - but nobody can compel it to use the system. It can stand around and whistle innocently while YouTube is populated with the same music over and over again.

You do business our way, now

The published version of the proposed contract also requires other sacrifices. Labels must give up on “windowing” - so they'd no longer be able to offer an iTunes exclusive for a week ahead of general release. Popular independent artists including Adele and The Black Keys have insisted fans pay for downloads rather than throwing their new releases onto streaming services, which recoup only a tiny fraction of the payback from album downloads.

Since true fans are happy to pay the full price for a new release when it appears, it makes financial sense for artists and labels to withhold new music from streaming services and then release the track weeks or months later.

Indies' royalty rates would be at the mercy of the major labels, meaning indies must accept lower royalty rates if the major labels decide to cut their own. "To the extent that any major label agrees to any rates for the Google Services that are lower than the rates set forth in Exhibits C or D, including with respect to bundling, Google will have the right to reduce Provider’s analogous rates accordingly, following thirty (30) days written notice (via email will be sufficient) to Provider," the contract states.

One legal source familiar with digital music contracts claimed the terms amount to a restraint of trade.

"It's a contract so bad that you would never sign it in normal circumstances. But Google has a gun to your head," our source said.

Any indie music labels who take this fight all the way will want speedy justice from the EU.

It's worth noting that back in 2004, Microsoft was slapped with a fine for €496m for failing to comply with the European Competition Commission's objections to its conduct in the software business. However, the EU took five-and-a-half years from the original complaint before it imposed the fine and remedy - and FOUR years later Microsoft still hadn't complied. ®