Alphabet's YouTube Strikes Sony Music, Universal Music Deals

After two years of negotiations, Alphabet Inc.’s (NASDAQ:GOOGL) online video streaming platform, YouTube finally signed agreements with Sony Music Entertainment and Universal Music Group for publishing their music on the platform in exchange of royalties.

The duration of the contracts with both music labels is still unknown. Back in May, the platform had inked a similar kind of deal with Warner Music Group.

The deals come after record labels’ repeated complaints to YouTube for providing insufficient compensation to artists and ignoring copyright breach. Deals like these are expected to help strengthen the company’s relationships with leading record labels.

Notably, shares of Alphabet have gained 36.3% year to date, outperforming the 28.3% rally of the industry it belongs to.

New Music Service

YouTube intends to convert its free users to monthly subscribers. The long-term deals will help Alphabet to introduce a new paid music service, which is likely to be launched early next year. According to reports, the service is being internally referred to as Remix but it is still unclear if the company will retain it.
Its music streaming service could be unique as it will allow subscribers to access live concert footage, exclusive music videos and karaoke tracks.

Our Take

Online and mobile video consumption is rising and YouTube is strongly positioned to benefit from the trend. It is widely used for consuming music and is one of the most important platforms for record labels to promote their albums. The U.S. music industry witnessed 15% growth in the first half of 2017, according to the Recording Industry Association of America, while global sales grew 5.9%, according to the International Federation of the Phonographic Industry. This bodes well for the platform.

Recently, the YouTube Red subscription service was rolled out for those interested in ad-free, offline, or background listening.

Programs like Google Preferred, Content ID, TrueView ads indicate that Alphabet is making efforts to maintain its revenue growth trend. Also, the company is working on YouTube Originals, the prospects of which look promising.

Alphabet Inc. Revenue (TTM)