YouTube faces a game-changing loss this week as Warner Music has suspended its collaboration with the Internet giant forgoing further negotiations for the pair’s contract. Warner had become dissatisfied with the compensation it was receiving from YouTube for the licensing rights it granted the site to play music videos along with allowing its users to include their songs in individual postings. Although the label had originally agreed to accept the portion of advertising revenues and price per play that YouTube offered, they recently decided this amount was not nearly enough to cover payment for their artists and demanded an increase.

YouTube made no efforts to improve the deal with Warner considering the similar contracts it has with other music labels such as Sony and Universal. YouTube is not so much concerned that losing Warner will hurt its business but more so that other groups will now question the adequacy of their compensation as well. The video posting site left a statement on its blog as an explanation for its users that could also be interpreted as a cry for help. Letting users know that they are only trying to be fair and are following the wishes of music companies, YouTube might be looking for their followers to complain to the powers that be. Music groups should also beware that if they decide to seek legal action in the future, the courts will most likely rule in favor of YouTube.

One can imagine this turning into a case similar to that of Tiffany v. EBay, settled this July after years of battle. Tiffany & Co. insisted that EBay was violating its duties as an auction house by not regularly searching items listed for those that infringe on a company’s trademark. The court finally ruled in favor of EBay stating, “it is the trademark owner’s burden to police its mark.” As long as YouTube removes all official music videos under the Warner label, should a user continue to post videos that contain some of the group’s music, it is the problem of Warner alone to have the user remove it. The issue of music licensing has faced a number of challenges throughout the decade and it will be interesting to see how this one plays out.