(Bloomberg) -- Facebook Inc. is offering major record labels and music publishers hundreds of millions of dollars so the users of its social network can legally include songs in videos they upload, according to people familiar with the matter.
The posting and viewing of video on Facebook has exploded in recent years, and many of the videos feature music to which Facebook doesn’t have the rights. Under current law, rights holders must ask Facebook to take down videos with infringing material.
Music owners have been negotiating with Facebook for months in search of a solution, and Facebook has promised to build a system to identify and tag music that infringes copyrights. Yet such a setup will take as long as two years to complete, which is too long for both sides to wait, said the people, who asked not to be named discussing details that aren’t public.
Facebook is eager to make a deal now so that it no longer frustrates users, by taking down their videos; partners, by hosting infringing material; or advertisers, with the prospect of legal headaches.
The latest discussions will ensure Facebook members can upload video with songs just as it’s rolling out Watch, a new hub for video, and funding the production of original series. Facebook is attempting to attract billions of dollars in additional advertising revenue and challenge YouTube as the largest site for advertising-supported video on the web.
Facebook Chief Executive Officer Mark Zuckerberg said on the company’s second-quarter earnings call that for the next few years video will drive Facebook’s business and determine how well the company performs. He told investors to expect the company to continue to increase its investment in the format, as it sees video sharing overtaking text and photo sharing in the future.
While Facebook can still pursue professional music videos, the company chose to prioritize clearing user-generated material. Most of the videos being uploaded to Facebook are by individuals (as opposed to media companies). Tamara Hrivnak, a former YouTube executive, has been leading negotiations for Facebook since joining the company earlier this year. Also a former executive at Warner/Chappell Music Publishing, Hrivnak is well-liked by her former peers.
The money from Facebook is the latest windfall for a music industry surging from the growth of on-demand streaming services Spotify and Apple Music. Global music sales grew 5.9 percent in 2016, according to The International Federation of the Phonographic Industry. Vivendi SA’s Universal Music Group, owner of the world’s largest record label, reported a 15.5 percent increases in sales in the most recent fiscal quarter, while Warner Music Group, owner of the third largest label, reported a 13 percent increases in sales.
Most of the growth is attributable to paid services from Spotify and Apple, though sales from advertising on YouTube are growing as well. The industry has rebuked YouTube time and again for not respecting intellectual property and paying too little to musicians.
Getting into business with Facebook presents something of a Faustian bargain. Rights holders need a deal. Given the current legal framework for copyright online, users are going to upload video with infringing material no matter what. The onus is on rights holders to police those videos. A deal ensures they get something rather than waste resources tracking down all the illegal videos.
Music industry executives also hope licensing songs for user-generated video on Facebook will place greater pressure on YouTube to behave. Yet by further empowering Facebook to host video and music, rights holders risk creating another YouTube –- a great source of promotion, but a place where consumption outpaces sales.