This article appeared in Entertainment Law & Finance, your monthly source for real-world news and strategy from major players in entertainment, contract and intellectual property law — serious analysis of the issues and case law that affect your practice.
When Google unveiled new changes to YouTube’s ad monetization policies in 2018, it astonished members of the creative community. Previously, the threshold for a video channel to be able to qualify for YouTube’s Partner Program — which enables creators to collect ad revenue — was a total of 10,000 views. Now, in order to receive ad revenue, channels must have a minimum of 1000 subscribers and 4000 hours of total watch-time over a 12-month period.
These changes stemmed from YouTube facing a rash of criticism from advertisers whose ads ran alongside of what they saw as unsuitable and inappropriate video content. Following popular vlogger Logan Paul’s broadcast of a suicide victim’s body on the platform and the outrage that Paul was able to continue to monetize his channel despite those atrocities, YouTube released a statement: “They [the new thresholds] will allow us to significantly improve our ability to identify creators who contribute positively to the community and help drive more ad revenue to them [and away from bad actors].”
Despite YouTube’s arguably good intentions with their new policies, both indie creators and creators with more established YouTube channels have subsequently paid the price. Many indie creators can no longer qualify for YouTube’s Partner Program so as to monetize their channels, as subscriber numbers were never previously determinants for monetization. And even for creators with more well-established channels, certain videos are now being demonetized due to video thumbnails, captions or content being deemed inappropriate in the eyes of Google.
This article delves into YouTube’s policies for channel monetization, explores the different streams of revenue an artist or creator may be entitled to receive for their works, and offer suggestions to indie creators and more established creators, so they can meet these new thresholds.
YouTube launched as a video-sharing website in 2005 and Google purchased it in 2006. By 2007, YouTube introduced the YouTube Partner Program, enabling creators to monetize their video content through ads being run alongside their videos. YouTube has since launched features such as: live streaming; film-rental services; Vevo — a multi-channel network that hosts music videos from the major record labels; YouTube Red (now Premium), which features the ability for viewers to watch videos without ads; YouTube music — a music streaming application; and YouTube TV, which provides access to the five major American television networks, along with other channels that are found on cable or satellite. Over the last few months, YouTube has also launched a channel membership feature and a merchandise store for creators.
More-established creators, whose channels have 100,000 or more subscribers now have the ability to offer channel memberships to subscribers, which provides access to more exclusive content and custom emojis. And channels with 10,000 or more subscribers can sell merchandise such as tee-shirts, hats and coffee mugs directly to fans via links under the video content. To date, YouTube is the second largest search engine, the third most visited site on the Internet, following Google and Facebook — and on average— people view 1 billion mobile videos each day.
Birth of Content ID
In its early days, YouTube, did not retain employees to monitor uploaded content. Consequently, many videos on the platform contained unlicensed music. As a result, Viacom filed a billion-dollar, copyright-infringement lawsuit against Google and YouTube. As a reaction to the suit and with increasing criticism from copyright owners, YouTube unveiled its “Content ID” system, which assists copyright owners with managing their intellectual property on the platform through a “Content Management System” (CMS).
Here is an excerpt from YouTube’s Help forum, which further explains the inner-workings of CMS:
“The YouTube system for managing your intellectual property consists of three major components:
- The YouTube rights management system identifies the owners and administrators of your intellectual property and defines the policies used to enforce your rights
- Content ID automatically scans YouTube videos for content that matches your intellectual property and applies the defined rights policy to the matching video
- YouTube videos are the (optional) public representation of your intellectual property, available to users on youtube.com
When you upload a piece of intellectual property to YouTube, you need to create a representation of it in each of these components separately. In other words, a single piece of intellectual property has up to three representations in the YouTube system:
- An asset is the representation of your intellectual property in the rights management system. You specify ownership and rights information as part of the asset.
- A reference is the representation of your intellectual property for Content ID matching. You provide a digital media file that Content ID compares to uploaded video content.
- A video is the representation of your intellectual property on youtube.com. The video’s metadata describes the content and specifies how it appears on youtube.com. The video uses the same media file as a reference.
The asset is the heart of the system, the object with which the other objects are associated. You must create an asset for every piece of intellectual property; references and videos are optional.
For example, take a music video on YouTube — in this instance, there can be three assets: the “composition share asset,” the “sound recording asset” and the video associated with the music, which can be either a Music Video asset — if the video is an official video, or an Art Track asset — if the video is not an official music video (think of a video with a still image in the background). Over time, copyright owners have delivered these assets to Content ID, which has developed into a database that essentially prescribes unique “digital DNA” to each asset. So when a person uploads a video to YouTube, that video is scanned against the files located within Content ID to see whether it contains any assets recognized by Content ID, like a sound recording asset or composition share asset. If the uploaded video does contain one of these assets, the asset owners can choose whether to monetize, track or block the video. If asset owners choose different policies, for example — a sound recording asset owner chooses to block the video and the composition share asset owner chooses to monetize — YouTube will choose the strictest policy amongst the asset holders and will block the particular video.
Accessing Content ID System
But not every creator can join the Content ID system. Anyone who sets up a YouTube Channel may use the Creator Studio Dashboard to manage that particular channel. As noted in the previous paragraph, those who have been accepted into the Content ID have access to CMS, which is essentially the Creator Studio “on steroids.” According to YouTube, to be accepted into Content ID, a creator must have a “substantial amount of original copyrighted material which is uploaded by other YouTube members on a regular basis.”
YouTube provides no guidance regarding the meeting of this threshold and companies that have established relationships with YouTube have no knowledge of their standards of acceptance. But for reference purposes, some common examples of creators who have met this criteria for Content ID acceptance include: major labels, music publishers and larger multimedia companies. Having CMS access provides many valuable benefits that are not afforded to those creators who have merely Creator Studio access. CMS allows users to upload many videos all at once, enables Content ID to block or monetize third-party uploads, and provides more detailed and accurate reports for a creator’s channel, such as reports regarding videos uploaded by third parties.
Despite the difficulty of acceptance into Content ID, artists who wish to get their music into Content ID have a pathway of accomplishing this goal — joining a YouTube Partner Service. YouTube Partner Services are companies that act as intermediaries between creators and the Content ID system. They submit creators’ assets into the system and take a cut of monetization, usually totaling around 15%-30%. Some examples of companies that provide these services include TuneCore, CDBaby, Songtrust and Audiam.
It is crucial for indie artists to sign up with one of these intermediaries if they are not signed to a major label, distributor, publisher or other party that has access to Content ID; because if artists do not have these deals and do not sign up with an intermediary, they will not be able to collect ad revenue from user-generated content on YouTube.
Ad Revenue Breakdown
It is common knowledge that creators can earn ad revenue money through their content, but what many fail to realize is that performance royalties and mechanical royalties can be generated through video streams on the platform (these two revenue streams will be discussed later).
A creator who has 1,000 subscribers to her channel and 4,000 or more hours of collective watch time over a year period can earn ad revenue, provided that the channel is also enabled for monetization. As a point of clarification, some tech companies refer to ad revenue for both the composition asset and sound recording asset as “synchronization royalties.” I will not use this term, as it is confusing; rather I will continue to refer to this stream of revenue as ad revenue.
YouTube, through Google, has a platform called “AdWords,” which enables businesses to create ads that are run against videos. Any business can create an AdWords account for free. The AdWords account will help the business choose relevant keywords for their ads to ensure that the ads will appear in front of properly targeted audiences. Although setting up an AdWords account is free, the business will have to pay for an ad campaign in order to start running ads.
The business can create a budget for the campaign and then choose — if it wants — to pay Google on a CPM (cost per thousand impressions) basis or CPC (cost per click) basis. There are six different types of ads that can be placed against YouTube videos:
- Display ads appear above the video-suggestions list or can, on occasion, appear below the video;
- Overlay ads are the small, banner-like, semi-transparent, ads that are located on the lower, 20% portion of the video;
- Skippable video ads are inserted either before, during or after the video, and viewers may choose to skip these after five seconds;
- Non-skippable videos are inserted either before, during or after the video, last about 15 to 20 seconds and cannot be skipped;
- Bumper ads are inserted before the video, last about 6 seconds and cannot be skipped; and
- Sponsored cards are ads that vary in size and display content featured in the video one is watching, like products’ featured in the video.
From a content creator’s standpoint, Google has a platform called “AdSense,” which places the ads found in AdWords against the creator’s videos. Once the content creator has signed up with AdSense and has enabled monetization on his/her channel, the different types of ads will be placed against videos that contain the content creator’s assets. When the ad is placed on the video, Google will then make ad revenue based on either the CPM or CPC criteria and will provide the content creator with a cut. Some people who constantly work with YouTube have confirmed that the YouTube/Creator split is 45% YouTube/55% Creator. The 55% allocated to the content creator is then split among the parties who own different assets of the video. For example, if it is a music video, the 55% is split three ways: 10% is allocated to the owner of the video, 15% to the publisher and the remaining 30% to the owner of the sound recording.
Note that certain types of ads must be watched in their entirety to trigger monetization. And in order to monetize overlay banner ads, a viewer must have watched the ad for at least 31 seconds.
Ad rates can also vary based upon the type of ad placed in connection with the video. For example, if a content creator’s audience also happens to like higher-end products, an advertiser will pay a higher ad rate to reach that audience. The particular time of the year also influences ad rates, as advertisers pay more for ads during the holiday season. Due to the variances discussed above, a video that has one million views could see an ad revenue payout between $1,375 to $4,950, which then, if applicable, is split among the asset holders in the manner described above.
Content creators who are accepted into Content ID, through CMS, can also control the types of ads are run on their channel — and generally it makes sense for content creators to enable all types of ads. These creators also have the power to Blacklist ads that they find unsuitable for their channel.
Performance Royalties, Mechanical Royalties and the Importance of Claiming Assets
It is vital that creators understand the importance of claiming assets so that these assets can be monetized. As mentioned previously, songwriters and publishers are entitled to both performance royalties and mechanical royalties stemming from the composition share asset. The performing rights organizations (PROs) all have agreements with YouTube and will collect performance royalties for songwriters and publishers when music is played on the platform. Each time a song is streamed on YouTube in connection with an Art Track asset, a mechanical royalty is generated, and YouTube will pay these royalties to either the publisher or intermediary who has claimed the composition share asset on the creator’s behalf.
Note there is no set mechanical royalty rate regarding YouTube streams, and the mechanical royalty generated per stream depends on different factors, such as the amount of time a song is played. Despite the unclear methods of these royalty calculations, it is crucial for publishers or intermediaries to claim ownership of the composition share asset to receive these royalty streams and ad revenue. Likewise, labels, or artists through an intermediary, must claim ownership of the sound recording asset to receive ad revenue.
Misinformation and Conflicts
People who work with artists to help monetize their YouTube accounts all too often see that an artist has claimed a video but failed to claim the rights to the composition share or sound recording asset, which means that ads may not have been run on the video. Thus, no ad revenue was generated through that point for the artist. Or conversely, the sound recording asset has been claimed but not the composition share asset, which leaves ad revenue money on the table.
For indie artists, intermediaries offer services to claim either some or all of the assets, so it is important to research the different packages offered for each intermediary. For example, Songtrust only claims and collects revenue related to the composition share asset, so one would need to find another party to handle the sound recording asset. Thus, indie artists need to either sign up with an intermediary that either handles both assets, or, if the artists register with an intermediary that only handles one of the assets, that the artists also register with an intermediary that will handle the other. And if indie artists have questions about these services, each intermediary has a “support” email address where one can submit questions to the intermediary’s employees.
Assets also commonly “sit in conflict.” An example of this is where an artist signs a deal with a new label that decides to re-release a previous album whose assets are already contained in Content ID and claimed by a previous label or artist. In instances like this, when the new label uploads the album on its page and claims the sound recording assets, the sound recording assets remain in conflict and neither party can monetize it until the conflict is resolved.
Another common example of assets sitting in conflict occurs when rights to an asset are owned by different parties in different territories. For example, one of the parties overclaims its ownership to the asset, stating that it owns the asset outright worldwide and does not correctly designate in which countries it holds the rights to the particular asset. As practical advice, it is advisable for labels, when signing deals with artists that cover already-released materials, to complete a full audit of all the rights to each asset. That way the asset can be correctly monetized from the beginning.
Demonetization and Censorship of Video Content
Since March 2017, a time declared by the creative community as the “Adpocalypse,” YouTube has received considerable backlash due to their monetization criteria changes. The March 2017 changes to the platform included the changing the threshold of monetization to 10,000 views on a video (which has since been replaced by the new thresholds mentioned throughout this article) and new guideline restrictions regarding ad placement.
The guideline restrictions were not made available to the general public; however, they purported to address videos that contained violent, racist and sexually explicit material. These guidelines were enacted after a rash of criticism from large companies that discovered their ads were being placed alongside objectionable and inappropriate video content. Some of these large companies included AT&T, Verizon Communications, Pepsico and Starbucks, which reportedly discontinued advertising on the platform for a period of time.
These guidelines were enabled to be effectuated by altering algorithms within AdSense; these algorithms can demonetize a video based upon a video caption, video thumbnail or video content being classified as inappropriate or unsuitable. The Adpocalypse frustrated many creators, one of which was Zombie Go Boom (ZGB), a company that operated a YouTube channel with videos that they self-described as “The Walking Dead meets Mythbusters” and boasted over 1.6 million subscribers and millions of video views each month, but whose videos were being demonetized.
ZGB filed a class-action suit against Google stating that their videos were unfairly demonetized. They pointed to the fact that after March 27, 2017, their ad revenue went from $300 to $500 dollars per day down to $20 to $40 dollars per day, a 90% to 95% percent decrease, essentially overnight. ZGB based their case on several claims, including breach of contract, tortious interference with contractual relations, and breach of the duty of good faith and fair dealing. Regarding the breach of contract claim, ZGB asserted that YouTube breached the contract between the parties “by altering the terms and conditions that governed how zombie and the classes’ videos would be monetized.” ZGB’s tortious interference claim reasoned that the monetization criteria changes and demonetizing videos without notice or recourse directly impacted contracts that ZGB and its class had entered into with third parties. The breach of the duty of good faith and fair dealing claim addressed ZGB’s assertions that these policy changes unfairly prevented ZGB and the class from receiving the benefits of the contract and had resulted in significant economic loss.
These arguments proved futile as the judge dismissed the claims, stating that the contract between creators and YouTube was explicit, as the terms read that YouTube was under no obligation to display advertisements alongside creators’ videos. Sweet v. Google LLC, 17-cv-03953 (N.D.Calif. 2018).
As a practical takeaway from this case, it will be nearly impossible for a party to successfully sue Google/YouTube based upon their monetization policy changes, as YouTube’s terms and conditions read that they can change their policies at will and that YouTube has no duty to display ads in connection with creators’ video content.
YouTube, besides being criticized for its demonetization practices, has also seen outrage from creators on account of video censorship. For example, Prager University produces conservative video content and filed suit against YouTube asserting numerous claims, one of which was the violation of Prager University’s First Amendment rights. Prager reasoned that YouTube’s censorship of some of their videos was based upon animus toward its political viewpoints as opposed to the content of the videos and therefore sought an injunction against the platform.
YouTube did, in fact, impose age restrictions upon and demonetized certain Prager University videos. By placing these age restrictions on the videos, YouTube viewers whose accounts have “Restricted Mode” turned on would be unable to watch these videos. The complaint noted in particular that a Prager University video titled “Are 1 in 5 college women raped” was restricted while a CBS video titled “Author John Krakauer on new book Missoula and the college rape epidemic” was not restricted — and surmised that its video was restricted because of its political viewpoints. Prager University’s argument was to no avail, as the judge denied the injunction and granted Google’s motion to dismiss, reasoning that YouTube was not a public forum run by a state actor. Prager University v. Google LLC, 17-C-06064 (N.D.Calif. 2018). As a practical takeaway from this case, it will be virtually impossible to successfully sue Google/YouTube on First Amendment grounds if one’s video content is restricted or demonetized, as it will be incredibly difficult to sufficiently allege that these platforms are state actors.
It seems ill-fitting to write a traditional conclusion to this article, because YouTube is an ever-evolving platform. I hope that readers have at least learned: 1) YouTube’s now-current monetization criteria; 2) what an “asset” is and the different types of assets contained in a particular YouTube video; 3) that an indie artist who is unable to gain access to Content ID, by signing with an intermediary, can have the artist’s assets uploaded into Content ID and earn different types of royalties; and 4) that videos can be demonetized on YouTube based upon video captions, video thumbnails or video content deemed as inappropriate by YouTube.
Gwendolyn Seale practices entertainment law at Mike Tolleson and Associates in Austin, TX, where she drafts and negotiates contracts related to music and film, sets up companies for creatives, and assists clients with their copyright and trademark registration needs. She thanks Evan Bregman and Brandon Martinez for their interviews and insightful information for this article, which is based on the author’s presentation and written materials at the November 2018 State Bar of Texas Annual Entertainment Law Institute. Ms. Seale can be reached at firstname.lastname@example.org.