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Online video site YouTube has stopped streaming music videos to users in the United Kingdom due to a dispute over royalties with PRS for Music, the UK entity that collects royalties for music artists.
The two sides have been locked in a battle over royalties for months, and YouTube, which is owned by Google (Nasdaq: GOOG), claims that PRS wants too much money for access to music licenses.
"The costs are simply prohibitive for us," Patrick Walker, director of video partnerships at YouTube, wrote in the official YouTube blog. "Under PRS' proposed terms, we would lose significant amounts of money with every playback."
In addition, according to Walker, PRS is unwilling to tell YouTube what songs are included in each license, making it impossible for YouTube to identify those songs for viewers.
"That's like asking a consumer to buy an unmarked CD without knowing what musicians are on it," Walker wrote.
Seriousness of Dispute in Question
It's not clear just how serious this dispute is for YouTube, advertisers, and PRS and the artists it represents.
"I don't think [the dispute with PRS is] going to be that big of a deal 
for YouTube," said Steve Weinstein, an equity analyst with Pacific Crest Securities. "The battle for mindshare and audiences has already been waged, and YouTube has won. People are going there for music and all sorts of other forms of content. From a business standpoint, [YouTube will] continue to grow."
Disputes such as this commonly arise in nascent industries such as online video, where the business models are still in flux, Weinstein told the E-Commerce Times.
"These things are a natural part of the business and usually work themselves out," he noted.
On the other hand, any dispute over royalties and licensing should be viewed as a serious matter, according to Gartner (NYSE: IT) analyst Michael McGuire.
"YouTube has to take this seriously, and all parties have to find a way to get this resolved," McGuire told the E-Commerce Times.
Without a royalty agreement in place, there is no way for consumers to view licensed online video content and no way for advertisers to reach consumers on sites such as YouTube. At the same time, without an ecosystem to track the usage of online video content, there is no way for rights holders and artists to be compensated for their material, he said.
Royalty Disputes Common
The dispute between YouTube and PRS is certainly not the first such disagreement between the recording industry and Internet content services.
In January 2008, another American music service, Pandora, blocked the streaming of content to audiences in the UK over licensing disputes.
The difference between that dispute and the one between YouTube and PRS is that YouTube may have significantly more leverage than Pandora due to the sheer size of its audience.
"There are other content areas and other places to go and get video," Pacific Crest's Weinstein said. "In general, though, people are going to YouTube. It gets the vast majority of online video traffic."
"The cynic in me says we're just watching the negotiations being done in the press," Gartner's McGuire said. "On the other hand, I think the position PRS is taking is short-sighted and rooted in the belief that they have to get the maximum price up front for those rights. This is a new market, and now is the time when there should be a little bit of flexibility in the negotiations so the market can get a legitimate monetization model established."
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