The New Economics of the Music Industry

YOUTUBE AND VEVO

Over the past couple of years, YouTube has grown into a lucrative machine for record labels. Popular videos – those that generate hits in the millions – can be festooned with ads, and YouTube shares that revenue with the copyright holders. And it can be just as lucrative for goofy, homemade videos that use popular songs as it is for stars' original videos. For the homemade stuff, the system works like this: JK Wedding Entrance Dance, in which Chris Brown's "Forever" is the soundtrack, has racked up more than 70 million views since its debut in July 2009.

After the video was becoming a huge hit, YouTube's content identification people and employees of Brown's record label, Sony, had a conversation. The label had two options: Because YouTube isn't a piracy service, like Kazaa or LimeWire, it could take down the video immediately – or it could sell ads against it. According to music-business sources, a top artist might make $1 per 1,000 video plays -- so Sony has received, by our rough estimates, $70,000 for the JK Wedding Entrance Dance. (Vevo can draw five or 10 times that amount.) And artists get a fraction of that based on the percentages in their contracts. Which did Sony choose? Well, check out the multitude of ads, inside and outside the video box, throughout JK Wedding Dance.

Of course, truly independent artists – like video kings OK Go, who recently split with their longtime label EMI – are in a much better position in this scenario. "I know individual artists who make tens of thousands of dollars a month on YouTube," says Eric Garland, CEO of BigChampagne.com, which measures online metrics such as illegal file-sharing numbers and sells the data back to labels. "And I know of individual artists who make more money on an individual basis from YouTube than they do from iTunes."

NEXT: Internet Radio

• 
  MUSIC 100 Greatest Debut Albums
• 
  MOVIES 'Great Gatsby' Is a Crushing Disappointment
• 
  TV Why You Should Watch 'Happy Endings'
• 
  POLITICS No Price Big Banks Can't Fix

Song Stories

“The A Team”

Ed Sheeran | 2011

This debut track from the then-20-year-old British singer-songwriter has a dark story behind it. Sheeran says he culls songwriting inspiration from "viewing other people's situations," which, for the heroine in "The A Team," involves drug addiction and prostitution that began as a teen. Sheeran paints the woman's trials with haunting imagery such as "But lately her face seems/Slowly sinking, wasting/Crumbling like pastries." "I did a gig at a homeless shelter, [and the song] is about one of the women there. It's her story," he said.

More Song Stories entries »

Twitter