YouTube's new deals could bolster its music streaming service (GOOGL, GOOG)

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YouTube signed a long-term agreement with Universal Music Group and Sony Music, two of the world’s top three record labels, Bloomberg reports.

The deal with Universal and Sony solidifies better royalty rates for music rights holders, a major point of contention over years of negotiations between the parties. Additionally, YouTube aims to crack down on user uploads of copyrighted music on the platform under the deal. YouTube signed a similar deal with Warner Music Group, the third major music label, in May.

The deals better position YouTube to launch its upcoming music streaming service.YouTube plans to launch a new music streaming subscription service, internally dubbed "Remix," in March 2018. The service will include on-demand music streaming — similar to Spotify — and offer video clips. Signing the deals with Universal and Sony were hurdles to meeting the planned launch date, according to Bloomberg. YouTube still hopes to enter talks with video-hosting service Vevo to include its music videos on Remix.

A successful music streaming service would strengthen YouTube’s relationships with music rights holders. YouTube has received criticism for not adequately paying artists for streams of their music videos. Additionally, ad-supported streaming services like YouTube and SoundCloud paid millions of dollars less than subscription platforms like Spotify did in 2016, according to Digital Music News.

Now that record label agreements are coming to fruition, YouTube’s next big challenge will be getting users to actually sign up for Remix. Users can easily opt to watch music videos on YouTube for free, potentially making it more difficult to convert some of its users into paying Remix subscribers. For context, music streaming leader Spotify has converted around 40% of its active users into paying subscribers. However, YouTube’s unique music catalog, which offers songs that Apple Music and Spotify don’t, could still help it differentiate its offering. 

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