YouTube, Universal Music Discuss Alliance
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Firms Would Build Online Hub for Music Videos That Could Charge Higher Prices for Ads
By JESSICA E. VASCELLARO and ETHAN SMITH
Google Inc.'s YouTube and Universal Music Group are discussing a partnership under which YouTube would build a new hub for music videos.
YouTube would also provide technology and advertising-sales support to help distribute Universal's video content to other Web sites, people familiar with the matter say.
Financial details of the arrangement -- which is in negotiations and could still fall apart -- couldn't be learned. But the partnership would represent YouTube's stepped-up efforts to lure premium content in order to sell more, higher-priced ads.
Talks about the new effort, which has the working title "Vevo," have been under way since last year, according to people familiar with the matter, and are at an advanced stage.
A spokesman for YouTube declined to comment on any discussions with Universal. A spokesman for Universal declined to comment.
The plan aims to help both companies milk more money from music videos, which are some of the most popular on YouTube. The idea is to better showcase the videos on and off the Web site in a way that appeals to advertisers, people familiar with the matter say.
Whether YouTube is discussing a similar agreement with other music companies with whom it is in regular negotiations remains unclear.
The talks come as tensions between YouTube and the record labels have escalated in recent months, with both sides facing pressure to earn more revenue. In December, Warner Music Group Corp. removed its content from the site, after talks to renew a licensing agreement failed.
The new agreement would extend far beyond the existing licensing arrangements YouTube has struck with Universal Music, a unit of Vivendi SA, and other major record labels in recent years. Universal is the largest recorded-music company in the world, with artists including U2, 50 Cent and the Killers.
Under those deals, record companies allow their music videos and songs to appear on YouTube in exchange for a share of the advertising sold next to the videos. But the revenue hasn't added up. Google doesn't disclose YouTube's revenues but has acknowledged it has been harder to make money off the service than it expected. And the record labels -- worried about giving their content away for virtually nothing -- aren't satisfied with their share.
The major labels have long struggled with the challenge of making money from music videos. In the 1980s, they let Viacom Inc.'s MTV air their music videos very cheaply, or even for free, under the theory that the clips would drive album sales. MTV did help spur CD sales in the '80s and '90s, but the labels have come to view the decision as a tactical mistake.
So in recent years, the labels, led by Universal Chairman Doug Morris, demanded that sites like YouTube and Yahoo Inc. pay to use their videos. Vevo is supposed to generate enough ad revenue to support the minimum payments guaranteed under such agreements.
At an investor conference this week, Google Chief Executive Eric Schmidt discussed the need to come up with some new vehicle, akin to Apple Inc.'s iTunes, for online music videos.
"There's an ongoing battle, business discussion, whatever term you want to [use], about how do you compensate the music industry for the use of their music in things which are promotional," he said. "And I don't know how that's going to resolve itself."
The talks come as other media companies seek new ways to make money off online music content. MySpace Music is a recently created joint venture among News Corp.'s social-networking giant and several record labels. The partners in MySpace Music share ad revenue from audio streams of music on the site. News Corp. also owns Dow Jones & Co., publisher of The Wall Street Journal.
Meanwhile, Google is showing more flexibility in other arrangements with content partners. To land some full-length versions of old television shows from CBS Corp., for example, it agreed last year to show pre-roll ads before the content.
[Fonte: WSJ.com]