Lip-syncing lawbreakers got a measure of amnesty Monday when Warner Music became the first major record label to let YouTube's legions of amateur filmmakers use its songs -- free and legal -- as soundtracks for their homemade movies.
Small as it may seem, Warner Music Group Corp.'s agreement with YouTube Inc. marks the first time a big label has embraced the Internet's remix culture in which copyrighted works are reinterpreted by fans. It's a major step toward embracing technologies that the industry once tried to sue out of existence.
"This is a huge mind shift," said Alex Zubillaga, Warner Music's executive vice president of digital strategy. "We're big believers of leading with innovation instead of litigation. This industry has traditionally tried litigation, and it hasn't led anywhere."
The deal highlights the rift within the music industry over how to do business on the Internet, seven years after the original Napster file-sharing software debuted and CD sales started sliding. Universal Music, the world's biggest label, last week condemned YouTube and video-sharing sites like it as hotbeds of piracy. However, piracy complaints haven't stopped Universal from seeking a deal that would authorize YouTube to show the music company's videos in exchange for payment. Sources at the two other major music companies -- Sony BMG Music Entertainment and EMI Group -- confirmed that they were also in talks with YouTube.
Nowhere does the industry's strategic schizophrenia play out more clearly than at youtube.com, where thousands of online auteurs routinely risk being sued because they use copyrighted songs without permission.
Warner Music, the nation's third-largest record company, agreed to license its entire catalog of music and videos to YouTube, which plays 100 million videos a day. The deal allows YouTube users to post videos of themselves lip-syncing songs by such artists as Madonna or Panic! At the Disco without fear of a cease-and-desist letter from Warner Music's lawyers.
The label will provide its entire music video catalog for distribution, just as it does with other online video sources, such as America Online and Yahoo Video. But it also sanctioned its music for use in the amateur videos that have become the hallmark of YouTube.
YouTube will report each use of the copyrighted music to Warner, which reserves the right to remove content at the artist's request. The label and YouTube would not disclose the terms of the deal but said the two would split the revenue from advertising and sponsorships sold around Warner's music videos and the user-created content.
Warner's Zubillaga said user-generated content "lets us create a contest on YouTube where kids anywhere in the world are challenged to create the coolest Green Day video. There is creativity waiting to be unleashed, and this revolution is going to happen with or without us."
Universal Music has more reservations about the revolution.
Universal Music chief Doug Morris last week singled out MySpace and YouTube, saying: "We believe these new businesses are copyright infringers and owe us tens of millions of dollars. How we deal with these companies will be revealed shortly."
Laura Martin, an analyst with Soleil/Media Metrics, said Morris was known as the "most-relationship-oriented guy" in the music business. So for him to make threats in a public forum signals his frustration.
"If the other music companies were smart, they would do precisely what Warner is doing with YouTube," Martin said. "They would say, 'Let's get the precedent established, and then five years from now, when there is real money on the table, we can fight over who gets how much.' "
The problem is that there's not much money on the table. Although online music sales are rising fast, they bring in a fraction of the revenue of CD sales.
Aram Sinnreich, managing partner for Radar Research, a Los Angeles-based media consulting firm, said Warner Music had found a way to capitalize on what he described as the "remix culture." Rather than passively listening to music or watching video, the most tech-savvy consumers are using it as a leaping-off point for creative expression.
"This licensing deal between one of the major record labels and one of the largest viral video sites is an indication that the entertainment industry is finally coming to understand what their business is going to look like in the 21st century," Sinnreich said.