A full 32-page version of YouTube’s contract for its upcoming premium music subscription service has been leaked online through the blog Digital Music News. So far, the most controversial clause included in the contract concerns the ability of major labels to agree upon lowered rates and therefore influence the rate of royalties paid to independent labels. The leaked contract was drafted to send to these independent labels, but is not a reflection of the actual signed deals. 

Last week Billboard magazine also released its analysis of the contract, without posting the actual document, and The Guardian has seen the contract as well. The leaked contract is accessible on Digital Music News.

“Independent labels trade body WIN has accused YouTube of trying to force its members to sign the contract with threats that their videos will be blocked on its free service if they do not,” according to Business Insider. 

The most controversial clause goes as follows: “To the extent that any major label agrees to any rates for the Google Services that are lower than the rates set forth in Exhibits C or D, including with respect to bundling, Google will have the right to reduce Provider’s analogous rates accordingly, following thirty (30) days written notice (via email will be sufficient) to Provider.”

If any major label accepts a lower rate for the YouTube service in exchange for a negotiated three-prong payment scheme that includes an advance, YouTube would have the right to lower the independent label rates as well, without giving them the advance that the major label would receive.

This would ensure that all labels would get the same deal for future partners integrating with the service, a source tells Billboard.

Another controversial clause: “It is understood that as of the Effective Date and throughout the Term, Provider’s entire catalogue of Provider Sound Recordings and Provider Music Videos (including Provider Music Videos delivered via a third party) will be available for the Premium and Free Services for use in connection with each type of Relevant Content, (excluding AudioSwap Recordings, which will be at Provider’s option) and set to a default policy of Monetize for both the Premium and Free Services, except as otherwise set forth in this agreement.”

In short, labels would have to allow their entire catalog to stream on premium and free services, with ads in and around both. YouTube may monetize the music if it has advertising connected to it, but there is no guarantee.

YouTube will push to have advertisements in some, but not all videos. “By mixing up videos with commercials and ones without them, YouTube is trying to keep its user base high and drive up overall advertising revenue,” says Billboard.

Related:
Indie Music’s Digital Drag: Small Music Labels See YouTube Battle as Part of War for Revenue, The New York Times, 6/25/14