Google Inc's online video site, YouTube, said on Monday it will block all music videos to British users after it was unable to reach a rights deal with the main songwriters' collection society.
The world's largest video sharing site said PRS for Music, a British collection society that collects royalties on behalf of nearly 50,000 composers, was asking it to pay many, many times more than the previous licensing agreement that has expired.
The costs are simply prohibitive for us -- under PRS's proposed terms, we would lose significant amounts of money with every playback, the company said in a blog on Monday.
The move is the latest sign of the tension between YouTube and the music industry and also indicates the video site's resolve to keep operating costs under control as it strives to generate meaningful profits for Google.
YouTube said PRS was also unclear about which songs are included in the renewed license.
We've been talking to them for a long time and we're still talking to them, said Patrick Walker, YouTube director of video partnerships for Europe, Middle East and Africa.
Walker described it as a painful decision.
But PRS disputed YouTube's version of events and said it was caught by surprise by the announcement in the middle of ongoing negotiations.
We were shocked and disappointed to receive a call late this afternoon informing us of Google's drastic action, said PRS for Music Chief Executive Steve Porter.
PRS said in a statement it was outraged on behalf of consumers and songwriters by YouTube's move.
Google has told us they are taking this step because they wish to pay significantly less than at present to the writers of the music on which their service relies, despite the massive increase in YouTube viewing, the London-based organization said in a statement.
The PRS statement pointed out that Google, YouTube's parent, saw its revenue grow to $5.7 billion in the last quarter. The figure will likely be juxtaposed against the fast dwindling fortunes of the music industry.
Some rights-holders argue the video site should pay a higher fee or share more advertising revenue since many users come to watch their music videos.
The move to block British users access to artists' music videos and user-created videos, which feature licensed music, will take effect on Monday evening British time.
The commercial relationship between YouTube and PRS is separate from YouTube's relationship with major record companies. Those relationships have also been strained at times.
Record companies such as Vivendi SA's Universal Music Group or Warner Music Group Corp own rights to the sound recordings and music videos. In December, rights talks between YouTube and Warner Music broke down after they failed to agree to payment terms, leading to thousands of videos being taken down.
YouTube and the music industry have had an awkward but mutually beneficial partnership. On one hand, label executives acknowledge that the popular video site is the way many people discover new music, especially as the power of radio and MTV wanes.
But at the same time with plunging CD sales, the labels hope that YouTube, which benefits from millions of visitors seeking music videos, will serve both as a promotional outlet and a key revenue source.
(Reporting by Yinka Adegoke; Editing by Derek Caney and Andre Grenon)