🎰 Major labels aren't betting on GenAI, at least with YouTube

"No points thanks, we'll just take the buyout"

Happy Friday!

We, the humble royalty accounting nerds of IC, had planned to take the rest of the summer off from the IC Newsletter. ICYMI it the previous edition, we bid farewell to our good friend Adam Burton, the driving force behind the IC Community Weekly — you can find him on LinkedIn or email him here if you want to connect — and we were planning to take a break to figure out how best to use this space moving forward.

But then I read about how major labels are reportedly considering taking “lump sum payments” from YouTube so the latter can train AI tools on the catalogs writ large, and it triggered all kinds of Royalties WTF-style thinking.

Because that "lump sum" bit here is saying a lot! It almost certainly means there would NOT be a follow-on royalty associated with the subsequently created works. As in, any revenue generated from a YouTube video that gets soundtracked with a major label-trained generative AI would not then remunerate the catalog or creators some % of said revenue.

Tracking and accounting those royalties at scale, we can tell you with the grizzled authority of an old sea captain, would not be easy. Especially if/when the new works jump to platforms outside of YouTube. There are a *ton* of things you’d need to work out to make this happen, let alone “fair”, one of which would include building something that looks a lot like IC (or you could just license IC, we have it right here, special price for you).

And for anyone thinking “couldn’t the LLM do that part too,” I have some bad news for you. The Will Page co-hosted and IC-approved podcast Bubble Trouble had a recent episode going deep on AI/LLMs, and around the 36 minute mark their expert guest literally uses music royalty accounting as their example of the *last thing* that AI/LLMs would be good at, because it’s not something you’re trying to guess at or approximate, it’s something you’re trying to nail down to the penny, and LLMs are bad at math.

All this said, it seems like a big miss for majors, and rather ironic, to just take the lump sum. Having the opportunity to effectively turn your catalog into a platform that people can create on top of at scale, with the potential to generate (even more) passive income through endless opportunities for getting a point or ten on a new work, seems like a lot to give up, right?

(The ironic bit is that, despite nearly a hundred years of “most record deals don’t recoup, the artist would usually be better off taking a full buyout for more money,” no manager or lawyer would ever council their artist to sign such a total buyout, nor would the artist want to. Do you want $100k, or $50k and a lotto ticket where if it hits all your dreams come true, and you actually do have a ~ 1% chance of hitting? Most would take the upside.)

So, is it the smart move to take lump sums from YouTube? Maybe yes, actually. But the majors probably don’t have a choice. Because majors (and basically all catalogs tbf) are not set up to license in this way, as many an AI bro will complain to you. The only way to bet on the upside effectively in 2024 is the same way the industry did it with Spotify in 2008 - take equity in the company itself. But of course, unlike a startup like Suno or a Udio [spits on ground], majors aren’t getting a piece of Youtube.

Either way, lump sum payments raise questions of their own. How would they get split up amongst the rights holders in the catalog? What might a fair, transparent version of this look like? What will it actually look like?

Holler with your thoughts, and I’ll likely come back with my own next week, summer weather pending. Till then,