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Susan Wojcicki, CEO of YouTube.

Michael Newberg | CNBC

Samuel Jones largely lives off the money he makes from YouTube as a TV and film reviewer.

“In terms of paying rent, buying food, buying cigarettes, it’s all YouTube money,” he said.

While his channel’s co-creator Max Bardsley is in university, Jones works on “NitPix ” full-time. The U.K.-based pair also nurture a small fashion business on the side that mostly provides some spending change.

Recently, Jones and Bardsley have been thinking about a backup plan. Like other content creators who have built brands and businesses on tech platforms like YouTube, they fear their livelihood and creative outlet could be threatened by a new copyright directive passed by the European Union in March.

Under the new rules, which member states have two years to formally write into law, tech platforms like YouTube could be held liable for hosting copyrighted content without the proper rights and licensing. That’s a big change from the status quo, which generally assumes platforms are not legally liable for their users’ uploads so long as they take down infringing content once flagged. But according to the directive, companies like YouTube can soon be held liable unless they can also prove they made “best efforts” to get authorization for the content and prevent it from being shared without rights in the first place.

YouTube and other tech platforms have argued that the only practical way to avoid liability will be to install even more restrictive content filters than the ones they currently have to prevent infringement. The EU directive does not require tech companies to do that and it makes exceptions for using copyrighted material in parody or commentary, as would be the case in Jones and Bardsley’s reviews.

But experts say it will be difficult for platforms to create automated filters that can distinguish this context, at least at first. That could mean a channel like “NitPix” would have to avoid using any movie or TV clips in their reviews to ensure their videos upload to the site in a timely manner.

Jones and Bardsely, along with four other YouTube creators interviewed for this article, remain optimistic that the final version of the laws will be more flexible than the vague language of the directive. But YouTube isn’t leaving things up to chance.

A threat to YouTube

YouTube is ready to put up a fight against the EU measure, which threatens to force it to block a wide swath of content and slow down the process of uploading videos to the site to avoid liability. If YouTube chose to block copyrighted content with stricter upload filters, everything from a family video of a couple’s first wedding dance to a potentially viral dance challenge video like a “Harlem Shake ” flash mob could be blocked from the site. Frustrated creators and users may flee the platform if it no longer provides the outlet for their creativity or boredom.

If creators take their work elsewhere, that would mean fewer videos to watch on YouTube and fewer chances for YouTube to generate ad revenue. The company is already under pressure to grow ad revenue after changes to its algorithms over the past year have likely hurt engagement in favor of winning back scorned advertisers worried about their brands appearing next to unseemly videos.

Alphabet CFO Ruth Porat blamed YouTube in part for the company’s decelerating ad revenue growth in its first quarter 2019, which sent Google’s stock plunging more than 7% following the report.

“While YouTube clicks continue to grow at a substantial pace in the first quarter, the rate of YouTube click growth rate decelerated versus a strong Q1 last year, reflecting changes that we made in early 2018, which we believe are overall additive to the user and advertiser experience,” Porat said on a call with analysts after the report.

YouTube recognizes the importance of keeping its creators happy on the platform. In an April 30 blog post, CEO Susan Wojcicki said YouTube will aim to further promote a wider array of creator videos in its trending tab to answer concerns that the same creators seemed to be featured all the time.

Wojcicki also said YouTube is working on improving its “Manual Claiming” tool so that YouTubers aren’t unfairly penalized for copyright claims stemming from extremely short or incidental content usage. But under the new directive, YouTube would likely have to rethink this claiming process.

“The incentive structure here for YouTube would be to delete everything where it has its doubts about its illegality,” said Stephan Dreyer, a senior researcher of media law and media governance at the Hans-Bredow-Institut in Germany. “In cases of doubt, the machine must always decide against the content creator and that’s something that paragraph 7 does not really cope with,” he added, alluding to the section that allows for commentary and parody exceptions.

In its final iteration, the directive makes specific exceptions for content that is used for criticism, quotation or parody, which legal experts said should wipe away fears of what critics labeled a “meme ban. ” Opponents of the directive originally argued the measure would prevent the spread of memes since copyrighted images that make up the basis of many of these satirical posts could end up filtered off of platforms. But even after the text was revised, tens of thousands of protesters took to the streets in Germany the week of the EU parliamentary vote, pledging to “save your internet.”

YouTube did not make a representative available for an interview for this article, but it has said on its site that revisions made to the directive before its passage were an “improvement.” But the company still remains wary of how it will be implemented.

“While we support the rights of copyright holders — YouTube has deals with almost all the music companies and TV broadcasters today — we are concerned about the vague, untested requirements of the new directive,” Wojcicki wrote in the blog post. “It could create serious limitations for what YouTube creators can upload. This risks lowering the revenue to traditional media and music companies from YouTube and potentially devastating the many European creators who have built their businesses on YouTube.”

Creators’ frustrations

YouTube creators often use copyrighted material as a way to highlight a point or comment on a specific piece of media. In many of these cases, this use is allowed under the principles of “fair use,” similar to the exceptions made in the EU’s final version of the directive.

In interviews, YouTube creators said these materials aren’t just an added plus for their videos — they’re a core part of what makes them work.

“I don’t want to have to spend half the video or three-quarters of the video just explaining things that I could show instead, and I think that when you do that, it kind of detracts from the video’s appeal,” said James Dancey, whose political commentary-focused channel “The Right Opinion ” has over 300,000 subscribers. “We have an audience that I feel like is waiting on us to deliver quality content, and one of the things I’ve realized as a YouTuber is there are many people who find my videos make a difference to their day.”

Arun Maini, who runs the technology review channel “Mrwhosetheboss ” with over 2 million subscribers, said he intersperses relevant copyrighted material in about half of his videos as a way to keep viewers engaged. He dreads the thought of producing a six-minute video of simply talking to the camera. Beyond being boring, he thinks this sort of video could actually hurt a creator’s following.

“If anything, you’d be better off not even trying because you’d be making such bad content that you’d be damaging your channel,” Maini said.

Overall, creators are optimistic the directive won’t excessively impact their channels, if only because they believe the new laws won’t work. But they do anticipate headaches from YouTube’s own filtering system, whose current iteration known as Content ID, is already a thorn many creators’ sides.

“Content ID is the only real existing model we have to work on to see what the filters would be like, and it’s been an absolute nightmare for me working under Content ID” said Dan Bull, a YouTube creator with over 1.5 million subscribers on his channel.

Bull, who creates rap videos about the internet, gaming and politics, said he’s had videos flagged by the filter because it could not detect that he had a nonexclusive license. He said he’s also learned of instances where the system incorrectly redirects revenue after someone makes a false copyright claim.

YouTube did not answer CNBC’s questions about Content ID or its characterizations by creators.

Bull said his problems with Content ID have already changed his creative process. He’s reluctant to create videos with fair use content because it’s become so burdensome to deal with.

“I don’t really want to make parody music anymore. I used to really enjoy making parody songs, but now when I think about that, I think about what a headache it would be with the copyright claims,” Bull said. “It seems to be contrary to the entire principle of what copyright was for.”

The “NitPix” creators said they temporarily had one of their TV reviews removed from the platform due to copyright, but it was later reinstated. They said they haven’t had problems with it in more than a year.

Given the technical limitations that already exist, legal experts say the complexity of such a system will advantage the already-dominant players.

Corynne McSherry, legal director of the Electronic Frontier Foundation, which has fiercely opposed the EU directive, said building this type of system is a task that “even the YouTubes of the world will not be able to accomplish,” leaving open the question of how up-and-coming platforms will tackle it.

Entrenching large platforms

A key criticism of Article 17 of the EU directive has been that it will further entrench large platforms’ foothold in digital distribution dominance. The directive gives more leniency to companies with under 10 million euros in annual revenue with a product available to the public for less than three years. But legal experts say that in trying to get tech companies to pay their fair share for copyrighted content, the directive has created a new problem that only the tech giants can solve.

“A likely effect of [Article 17] will be to entrench the exact tech giants that everyone’s been complaining about all this time,” McSherry said.

Legal experts interviewed for this article said platforms will likely pursue broad licensing agreements to avoid liability. YouTube already has agreements with record labels that give it certain rights to use its artists’ music in exchange for royalty payments. Experts suggested that YouTube could broaden the scope of its licenses to include a wide array films, TV shows and games as well so that licensed content is cleared by its filters.

But since such broad licenses would require platforms to shell out lots of cash, this solution could actually prove even more exclusionary for emerging platforms.

“I don’t really want a world where YouTube is the only platform I can look to for videos,” McSherry said. “All we are doing is making sure they can continue to be the dominant video player and make sure they can exercise enormous power over our video experience.”

Hope in impracticality

For critics of the directive, one last hope is that the rules as they are written will be too impractical to work.

“In the short term, I’m not that worried about it,” said Tom Honeyands, who hosts the YouTube tech review channel “The Tech Chap ” with over half a million subscribers. “I just think it’s far too vague to ever be much of a threat besides the platforms doing their best.”

Legal experts believe the fate of the European internet will ultimately play out in the courts.

“I think that what’s going to happen is that countries are going to do the best they can because that’s what they have to do now to try to implement it. But then we are going to see a lot of litigation as this plays out,” McSherry said, “and I think that’s the arena where the deep flaws in the proposal are going to become very very clear.”

But several also acknowledged that the fears around the directive could prove to be for naught as platforms and users get used to the new restrictions.

“We’d seen this with GDPR,” said Georgia Shriane, senior associate solicitor at the U.K.-based law firm Boyes Turner, referring to the EU’s General Data Protection Regulation, which went into effect last May. A year later, people have adjusted despite initial blowback.

“With these things they start out being a bit of a big pain in the backside,” said Jaclyn Wilkins, a U.K.-based lawyer with a focus on gaming, tech and digital media at Charles Russell Speechlys. “But eventually people start to conform and it becomes the new normal.”

Bull, the YouTube rapper, still can’t fathom the internet under the directive.

“Either we are going to be in a really draconian, dystopian internet where everything is filtered like it is in China,” Bull said, “or they’ll realize it’s not going to work and we’ll just have to go back to the drawing board.”

YouTube, for its part, is not ready to throw its hands up on the directive.

“While the Directive has passed, there is still time to affect the final implementation to avoid some of the worst unintended consequences,” Wojcicki wrote on the creators blog, referring to the two years EU member states have to comply with the directive. “This is not the end of our movement but only the beginning.”

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This chart shows why everyone on Wall Street is so worried about the yield curve



Wall Street’s top rated economist Ed Hyman just called the yield-curve inversion “the number one” market risk, and this chart shows why.

Going back to 1986, when the yield curve turned flatter drastically and eventually inverted, the S&P 500 tends to go into a downward spiral within the next 12 months, according to The Leuthold Group.

Take 2004 when the yield spread started falling from its highs. The flattening didn’t get the market’s attention until about 2006 when the curve inverted, and the recession hit exactly a year later.

There’s “a positive relationship between the yield curve and the S&P 500’s next 12-month returns,” said Chun Wang, Leuthold’s senior analyst and portfolio manager, in a note. “Recession or not, a flatter curve generally bodes ill for future stock market performance. The current trend in the yield curve is likely to cap the upside for stocks in the next 12 months.”

Keep in mind that Wang tested the spread between the 10-year and 2-year Treasury yields, not the 3-month and 10-year yield curve that’s currently inverted. Yield-curve inversion has been a reliable recession signal closely watched by experts and the Federal Reserve.

The shape of the curve is exuding a bad omen for the stock market if history is any guide. The yield on the 10-year Treasury hit a 20-month low last week as the escalated trade battles triggered a broad flight to safety. The low benchmark rate has flattened the 2-year/10-year yield curve to only about 23 basis points on Friday. In December, the spread hit the lowest level since the financial crisis during a massive sell-off. Yet despite the flattening, the S&P 500 is still up 15% this year.

Troublesome banks

The other overlooked element of the yield curve is that it’s now the dominant driver for an important group of stocks: banks, the analyst pointed out.

Bank stocks have significantly lagged the overall market regardless of interest rates’ ebbs and flows since the start of 2018 and they moved almost in tandem with the flattening yield curve, Wang said.

“The market is much more worried about the curve than the rate level…bank stocks are basically a proxy for whatever equity investors are most worried about in the bond market,” Wang said. If the spread between 10-year and 2-year yield dips into negative territory, “the implication for bank stocks is quite troubling,” he added.

Bank stocks have underperformed recently as the chance of rate cuts soared amid fears of an economic slowdown and ongoing trade war. Lower interest rates could wreck large-cap bank earnings by as much as 10%. The SPDR S&P Bank ETF has fallen 2.8% in the past month and 4.8% in the last three months, while the S&P 500 gained 1.7% and 2.6% in those periods.

“An escalation of trade war without offsetting rate cuts, a much stronger dollar, and flatter foreign-yield curves could all provide the final push into full inversion. We recommend watching bank stocks closely, given the special role they take right now,” Wang said.

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Three reasons why the Fed won’t cut rates at its June meeting



Federal Reserve Chairman Jerome Powell holds a press conference following a two day Federal Open Market Committee policy meeting in Washington, January 30, 2019.

Leah Millis | Reuters

With pretty much everyone convinced that the Fed is going to be cutting interest rates at some point this year, the central bank faces one rather pressing question: Why wait?

After all, the market already is pricing in at least reductions this year and probably three. Though the Federal Open Market Committee meets next week, there is little expectation of a move then.

Not moving next week essentially comes down to three factors, according to Fed watchers: The looming G-20 summit at which the U.S. and China, at least theoretically, could reach a trade agreement; a desire not to be seen as overly influenced by the financial markets and President Donald Trump’s hectoring; and the desire to avoid making December’s rate hike look like a policy mistake.

“They don’t want to be seen as cowing to any sort of pressure, be it political from the White House or from the market,” said Lindsey Piegza, chief economist at Stifel. “The Fed is going to look at the data, they’re going to look at what their models say. To them, it doesn’t matter what the markets say.”

‘No cuts this year is hard to believe’

Wall Street, though, is clamoring for a cut.

Futures pricing Friday afternoon in the fed funds market showed a 21% chance of a move at the June 18-19 meeting, down from 30% earlier in the day on some stronger-than-expected economic data. The chance of a July cut remained at 85%, while the market was figuring a 61% probability for three moves in total by the end of the year.

As things stand currently among Chairman Jerome Powell and his fellow Fed officials, no moves are indicated. That is likely to change when FOMC members submit their economic projections at the June 18-19 meeting, which include the “dot plot” of individual members’ expectations of where rates are headed over the next few years.

“I can’t imagine what they are going to do with the dots,” Jeffrey Gundlach, founder of DoubleLine Capital, said in a webcast Thursday. He noted the “big divergence” between the market and Fed projections and said, “No cuts this year is hard to believe.”

In May, Gundlach recommended a straddle options trade that benefited from wide fluctuations in interest rates. The trade recently had netted a 22% gain.

Fed officials have been under intense pressure from more than the markets. Trump has been a continuous nemesis to the central bank, most recently repeating his demand for lower rates and saying he’s “not happy with what [Powell has] done” as Fed chair.

Along the same lines, the Fed has its credibility to worry about.

Trump and a growing number of market participants view the December rate hike — the fourth of the year — as a policy mistake that came amid several pivots and missteps that caused Powell and other officials to change their public statements to assuage investors’ nerves.

‘A verbal intervention’

From October to March, the Fed went from being “a long way from neutral” on rates and with a balance sheet reduction on “autopilot,” both in Powell’s words, to adopting a “patient” stance on policy and finally laying out a timetable to end the balance sheet program by September. Officials also cut the forecast level of rate hikes from two to zero, and now are in the position of having to convey a likelihood of cuts, if that is the way the FOMC members see things unfolding.

“It’s a difficult transition for the Fed now from two rate hikes this year to the pause and now moving closer and closer to rate cuts,” said Quincy Krosby, chief market strategist at Prudential Financial.

Krosby points to two pivotal events recently that signaled yet another change in policy — remarks from Powell and Vice Chairman Richard Clarida earlier in June that set the groundwork for potential cuts. In Powell’s case, it was a pledge to “act as appropriate to sustain the expansion” while for Clarida it was a vow to adapt policy to keep the economy “in a good place.”

“You can’t dismiss the comments from Powell and Clarida. That was orchestrated. They were laying the groundwork. That’s what the Fed does,” Krosby said. “It came across as verbal intervention and they didn’t even have to do anything. The market reacted.”

Indeed, stocks have been on a solid run lately, with the Dow Jones Industrial Average up more than 5% in June after a brutal May. That equity strength gives the Fed another pillar to rest on if it chooses not to cut this month, though that hasn’t always been enough to stop easing in the past.

But if the market strength holds up and the U.S. and China come to a trade agreement, it at least could lower the level of expectations for cuts.

Tom Porcelli, chief U.S. economist at RBC, said a client survey showed that if a trade deal gets one, 85% of clients “would not react negatively to the Fed taking a pass” on a July rate cut.

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Vladimir Putin muscles into Africa, which is bad news for US interests



Russian leader Vladimir Putin recently bought himself into an African country for a relative pittance, working through Yevgeny Prigozhin, his favorite contractor for such special projects, which have ranged from attempting to tip U.S. elections to saving Syria’s dictator.

With that partner, Putin won an insider’s influence over the strategically placed Central African Republic, or CAR, and priority access to its oil, diamonds, gold and uranium resources. At least that’s how one U.S. government official, with years of experience tracking such matters, explains this bargain basement price of geopolitical cunning.

The story goes that President Faustin-Archange Touadera, though elected fairly in 2016, was struggling to exert control over much of the nation’s territory. Soldiers from a United Nations peacekeeping mission were working to stabilize the country amid clashes between rival militias, but inadequately.

That’s when Prigozhin, nicknamed “Putin’s chef” for his catering business, stepped forward with money, training, paramilitary support and other survival help. (That’s the same Prigozhin indicted by Robert Mueller for funding a social media troll factory to influence the 2016 U.S. presidential election.) Russia also provided CAR’s president his national security advisor, Russian intelligence agent Valery Zakahrov, who serves him to this day.

Welcome to our new era of major power competition, which is playing out globally, sometimes quietly and sometimes this colorfully. What the CAR story provides is yet further evidence that America’s autocratic rivals, both Russia and China, are acting with greater operational creativity and strategic purpose than their counterparts – in this case France and the United States.

In the Central African Republic, Washington had discarded this resource-rich country, poised strategically between Africa’s Muslim north and Christian south, as a place of marginal importance. US officials are now scrambling to frame a response.

Ensuring his escalating African efforts aren’t missed, Putin and Egyptian President Abdel Fatah al-Sisi will convene 50 African leaders at the first-ever Russian-African Summit in Sochi this October. Russian Foreign Minister Sergei Lavrov, a frequent traveler to Africa, says its purpose will be to cement “Russia’s active presence in the region. “

When Moscow sees a vacuum in Africa left by Europe or the United States, it increasingly steps in with trade and business agreements, military sales and cooperation, and political and paramilitary support. What it lacks in China’s means it makes up for with muscle. Putin’s efforts sometimes fail: Russia bet on the wrong horse in Sudan and paid handsomely for a nuclear energy contract in South Africa that looks less likely now that Jacob Zuma has left power.

Russia’s successes, however, are more frequent. And both Russia and China see themselves involved in a long game for position and influence on an African continent that by 2050 will have 25% of the world’s working age population and the greatest store of rare earth materials outside of China. What’s more, its 54 countries make up the most important voting bloc in the United Nations, providing both China and Russia the wherewithal to block Western initiatives.

Though the story of China’s increased influence in Africa is well-known, the competing Russian version has only recently gained more attention.

The Guardian this week, reporting from documents leaked to the Mikhail Khodorkovsky funded Dossier Center, reports that Russia is seeking to bolster its presence in at least 13 African countries – having already signed military deals in 20 states – “by building relations with existing rulers, striking military deals, and grooming a new generation of ‘leaders’ and undercover ‘agents.'”

The documents include a map that assesses the level of cooperation between Prigozhin’s “company” and individual African countries, scoring them at between one to five points on matters of cooperation that include military, political, economic, police training, media and humanitarian projects.

This Russian activity hasn’t gone without notice in Washington. Last December, national security advisor John Bolton, in a speech to the Heritage Foundation, laid out what he called “the Trump administration’s new Africa strategy.”

“In short,” said Bolton, “the predatory practices pursued by China and Russia stunt economic growth in Africa; threaten the financial independence of African nations; inhibit opportunities for U.S. investment; interfere with U.S. military operations and pose a significant threat to U.S. national security interests.”

He outlined a three-part response, which included advancing trade and commercial ties, countering radical Islamist terrorism and violent conflict, and ensuring U.S. aid dollars are more effectively deployed.

The United States, however, is playing catch-up and lacks not only the bandwidth but also the focus. It also hasn’t yet fully absorbed the requirements of this new, global struggle for influence, one where the costs of losing may not be apparent until it’s become a fait accompli.

One of the earliest experts to spot this Russian shift of attention to Africa was J. Peter Pham, director of the Atlantic Council’s Africa Center. Pham isn’t ready to predict a return to the Cold War’s zero-sum competition in Africa, but he does believe the United States and Europe “no longer can ignore Moscow’s resurgent interest” and its reconstituting of a strategic web of access.

The Washington-based Institute for the Study of War tracks several lines of Russian effort: military basing, security cooperation, capturing the emerging nuclear energy market, gaining access to natural resources, leveraging private military contractors and growing agricultural export markets for its wheat.

One of the most telling recent efforts, reported in a BBC documentary earlier this year, involved a Russian campaign to influence presidential elections in Madagascar. According to the BBC, the Russians worked with six of the 35 presidential candidates. Candidates who received Russian money told the BBC they were instructed to back off and support the front-runner, who Russia was also backing, when it became apparent he would win.

Yet tracking these sorts of Russian activities in Africa can be a perilous game. Last July, three Russian journalists investigating Prigozhin’s paramilitary involvement in CAR were shot dead outside the capital city.

Russia’s price for acquiring influence in the Central African Republic might have been a small one. The price for the United States and Africans alike of neglecting this Russian shift may be far higher.

Frederick Kempe is a best-selling author, prize-winning journalist and president & CEO of the Atlantic Council, one of the United States’ most influential think tanks on global affairs. He worked at The Wall Street Journal for more than 25 years as a foreign correspondent, assistant managing editor and as the longest-serving editor of the paper’s European edition. His latest book – “Berlin 1961: Kennedy, Khrushchev, and the Most Dangerous Place on Earth” – was a New York Times best-seller and has been published in more than a dozen languages. Follow him on Twitter and subscribe here to Inflection Points, his look each Saturday at the past week’s top stories and trends.

For more insight from CNBC contributors, follow @CNBCopinion on Twitter.

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