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YouTube leaked contract hits off-notes for indie labels

Google's video site has a subscription-music service coming. Its leaked offer to independent labels confirms YouTube's terms.

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That sound you hear is indie music labels going "ouch."

The contract at the center of a disagreement between Google's YouTube and some independent record labels was published online by Digital Music News, confirming that the massive video site requested the smaller labels automatically give up their royalty rate if a major label agrees to something lower.

Some independent labels have refused to sign in hopes of getting a better deal, but YouTube said it will start scraping its video platform of content that doesn't adhere to the new terms. The online-video site noted that the scrubbing will affect 5 percent of musicians represented by labels on YouTube.

The conflict highlights friction caused streaming-music services rapid growth: The format has helped foster independent artists like Macklemore and Arctic Monkeys to become some of the recorded music industry's biggest hit makers and Grammy winners, but tech companies eager to enter the streaming-music market are willing to launch with a partial catalog to get in the game.

The publication of the contract Monday is the first, full look at the terms Google proposed, after Billboard and The Guardian analyzed the proposal in reports without publishing the contract itself.

Although not yet officially announced by Google, the YouTube music service is said to be similar to that of Spotify and Beats Music, but with videos in addition to streaming music. It's said to have both a free version and a $10 premium version that will give users unlimited access to albums and artists without ads and with offline caching.

YouTube has been pushing ahead with its plan to launch the service this summer with major-label deals already in place, despite the fact that some independent labels aren't on board.

Google said later Tuesday that its "goal is to continue making YouTube an amazing music experience, both as a global platform for fans and artists to connect, and as a revenue source for the music industry."

"We're adding subscription-based features for music on YouTube with this in mind -- to bring our music partners new revenue streams in addition to the hundreds of millions of dollars YouTube already generates for them each year. We are excited that hundreds of major and independent labels are already partnering with us," the company said in a statement.

One of the thornier clauses in the contract mentions that if a major label agrees to any royalty rate that is lower than rates given to an independent label, Google will be able to lower the independent label's analogous rate accordingly, after a 30-day notice -- even if that notice is a simple email.

Billboard, citing an anonymous Google source, said that type of clause is a "standard term across all other music services," saying it ensures that all labels would be provided the same deal for future partners integrating with the service.

The other important clause to note is "Catalogue Commitment and Monetization," which asks independent labels for their full catalog. That clause would be an issue for labels who have signed their own contracts with artists who insist on withholding music from subscription services.

Updated at 6:30 p.m. PT with comment from Google.