PRS vs YouTube - its a funny old Game Theory

Yesterday YouTube announced it would no longer run "high quality" (aka legal) videos in the UK as the Performing Rights Society is charging too much for performers rights to make it viable (here is the BBC article). US internet radio station Pandora had a similar issue last year and pulled out of the UK too.

In a nutshell, YouTube/Gooogle says the PRS is wanting too much money, and the PRS says YouTube wants to pay too little. YouTube is thus pulling the service until the PRS buckles down and sees (a lot less) cents. Both sides have written blog posts, each one blaming the other.

Standard negotiating tactics, you would think. But this is not a one off - this is an ongoing game, of many more that 2 halves.

Initially, YouTube's defection makes it look like they "win" - if winning is what we mean by not making as much money out of the UK market as hoped, and making the PRS look like out of touch, grasping old shysters. However, this game has feedback as we note, so the next question is "what do the other players in the game do now?"

Well, watchers of music videos are not going to go away, and on the internet YouTube is not the sole supplier, so over time YouTube's vacuum will be filled in other ways - one risk is that its illegal methods that win out, but the other is that new players emerge and replace YouTube. And the UK si one of those "big enough" markets that could launch major competitors to YouTube.

The PRS's risk is that it can't carry on holding all internet players up to ransom, as that would clearly bring some form of concerted action against it. As the BBC notes:

.....the issue was an industry-wide one and not just related to YouTube.

"By setting rates that don't allow new business models to flourish, nobody wins."

Services such as Pandora.com, MySpace UK and Imeem have also had issues securing licence deals in the UK in the last 12 months.

The issue being that today, you simply cannot make as much money per user via advertising and subscription online.

In our recent report on the Future of Online Video we predicted a chaotic interregnum period of about 3 years where these issues are played out, various Old and New Media entities using all sorts of means to jostle with each other for positioning. The Old Media are trying to transition to the new world without losing their sources of value, the New Media are trying to wrest these businesses away.

However, the result of this wrestling is that they lose sight of the endgame, which is delighting the end customer, and spend so much time fighting each other that in the confusion the customer goes somewhere else.

So where else might they go?

Well, we called this interregnum period "Pirate World".

Arrrr......Radio Caroline, prepare to slip yer moorings.

Update - a few more things are coming to light - Firstly, the YouTube announcement was unilateral - PRS says they didn't know it was coming. Secondly, rumours floating around the FT Digital Media conference today is that YouTube is locked in hard negotiations with the record labels, and the PRS is an entity that the labels don't control (the PRS is more a musicians union in structure) so thirdly, is this more an attempt to browbeat the musicians as part of the battle for Aggregation rights in the New world? This is looking a bit like a Proxy fight.

Update 2 - Last.fm weighs in, saying sort it or piracy will put a plague on all our houses.