Can YouTube Catch Spotify to Become Music’s Top Royalty Stream?

Spotify remains the king of music streaming, but its lead is shrinking. YouTube generated over $6 billion to the music industry in the 12 months ended June 2022, the company announced Tuesday (Sept. 13). That was a 50% increase from the last figure YouTube reported, $4 billion over a 12-month period, in June 2020.

The $6 billion milestone raises questions about when, if ever, YouTube will surpass Spotify in terms value for creators and rights holders. “We want our twin engine of ads and subscriptions to be the #1 contributor of revenue to the industry by 2025,” wrote Lyor Cohen, YouTube’s global head of music, in a blog post on Tuesday.

It won’t be easy but it’s not impossible. Consider how fast YouTube has grown since Cohen joined the company from Warner Music Group (where he was chairman/CEO of recorded music) in 2016.

YouTube Music reached 30 million subscribers in October 2020 and announced the 50-million subscriber in September 2021 — a 67% increase worth 20 million subscribers in less than a year. In 2017, a year before YouTube Music launched, the company’s two music streaming platforms — Google Play and YouTube Red — had a combined 5 million subscribers, Billboard reported at the time. YouTube’s Tuesday announcement did not include any update on YouTube Music’s subscriber count.

Spotify has maintained its lead over YouTube and Apple Music in terms of number of subscribers. Over roughly the same time YouTube added 20 million subscribers (the third quarter of 2020 to the third quarter of 2021) Spotify added 28 million subscribers, to 172 million, and finished the second quarter of 2022 with 188 million. It’s still pushing hard, too, betting big on podcasts and audiobooks to bring in more customers.

YouTube is the world’s most trusted source of video content. With 2.6 billion monthly users as of January 2022, according to Statista, YouTube ranks behind only Facebook in global audience size. YouTube has a huge audience that allows it to monetize users for free through advertising and convert a small percentage of users into paying customers. YouTube takes music streaming to the next level by monetizing a variety of music videos, including short- and long-form video and audio-only tracks. User-generated content accounted for 30% of royalties paid to the music industry — the same proportion as its June 2021 announcement.

Spotify paid out $7 billion in royalties to the music in 2021, up 40% from $5 billion in 2020, according to the company’s annual Loud & Clear report. This was $1 billion more than YouTube announced six months ago.

Since YouTube provided a mid-year statistic, comparing YouTube’s latest figure to Spotify requires estimating the latter’s royalties for the period ended June 30, 2022. Spotify does not include music royalties in its income statements. Spotify doesn’t include music royalties in its income statements. However, they do include other expenses such as podcast content into the cost of sales. This was $9.1 billion (7. 96 billion euros) in the 12-month period ended June 30.

Using Spotify’s ratio of music royalties-to-cost of sales from 2021, the company would have paid out about $7.6 billion in the 12-month period ended June 30, 2022, the same period covering YouTube’s $6 billion in music royalties. In this back-of-the-envelope calculation, Spotify’s music royalties were roughly 27% greater than YouTube’s for the same period.

Cohen’s goal of surpassing Spotify by 2025 would require YouTube to outgrow Spotify over the next two and a half years. However, it would require a significant change in royalty payout growth rates. If Spotify can manage to grow music royalties by 20% annually, YouTube would need to increase its payouts to the music industry by 32%.

Not long ago, the music industry was critical of YouTube’s payment of what many considered substandard royalties despite having a hugely popular platform. YouTube is now a vital source for both revenue and promotion seven years after its launch.

In a press release, Michael Nash , executive vice president of digital strategy at Universal Music Group noted that YouTube had “significantly increased payments to recording artists, writers, and labels” and that this was “very good news for artists and composers in times of economic uncertainty and rising tour costs .”