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Universal Music, YouTube forge partnership

The music giant will provide videos from its biggest acts for a new channel on YouTube.

April 10, 2009|Dawn C. Chmielewski

U2 lead singer Bono, well known for his ONE campaign against poverty, has turned his focus to a charity case closer to home: the ailing music industry.

The rocker is credited with bringing together Universal Music Group, the world's biggest music company, and YouTube, Google Inc.'s online video site, for talks that on Thursday resulted in a partnership to launch a music video service featuring professionally produced content from the label's big-name acts.

YouTube will create a dedicated channel on its site, to be called Vevo, where users can watch music videos from Taylor Swift, Kanye West, Weezer and other Universal artists. Later this year, Universal and YouTube will debut a separate online music video site, Vevo.com, where viewers can watch music videos from Universal's library. YouTube will provide the underlying technology, Universal will furnish the content, and the partners will split the advertising revenue.

"We have been searching for a way to work with the rights holders, which really does drive more -- let's be blunt -- more revenue," said Google Chief Executive Eric Schmidt.

Music videos have posed a vexing dilemma for YouTube. These short-form videos are among the most watched clips on the site, with a hot new track from an artist like Soulja Boy attracting millions of views. But the advertising revenue has not been enough to make YouTube's partnerships with the labels profitable, even though it monetizes hundreds of millions of views a day. Indeed, Warner Music Group said it pulled its music videos off YouTube in December in a licensing dispute over the value of its content.

Universal Music Chairman and CEO Doug Morris proposed an approach modeled on the success of the Hulu video site, a joint venture of News Corp. and NBC Universal that, after a little more than a year, is attracting 34 million monthly viewers with the lure of Hollywood movies and episodes of popular TV shows.

Morris outlined a similar concept for music videos, in which YouTube and Universal would bring together all the professionally produced content into the online equivalent of MTV. The venture would redistribute the music videos online in a bid to grab an audience large enough to attract advertisers. Morris said he was speaking with other major labels about participating in Vevo.

Bono played the role of digital ambassador, prodding his label, Universal, and YouTube to explore a partnership.

Morris recounted how, over dinner in Paris, Bono suggested he meet with Google's chief executive. Schmidt, meanwhile, said he received an e-mail from Bono urging him to meet Morris. That spurred a trip to New York, where Schmidt said he was struck by the Universal executive's ideas for new advertising and sponsorship models.

"I came back here in California [thinking]: Why don't we think about a new approach?" Schmidt said. "That then kicked off Doug's vision."

Record labels are eager to explore new revenue sources to help offset free-falling CD sales. Album sales this year are down 45% from 2000, according to Nielsen SoundScan. A recent Forrester Research report projects that disc sales will continue to decline at an annual rate of about 9% over the next five years as retailers reduce the shelf space allotted to CDs and music fans shift their purchases online.

"The options for record labels, in terms of business models, have really dwindled," said Paul Verna, an entertainment industry analyst with researcher EMarketer. "When you look at the steep decline of physical [sales], look at the digital formats that seemed to show promise to make up for the losses in physical. Most of these are really falling short of expectations."

Universal Music has long espoused the commercial potential of music videos, which as recently as three or four years ago were deemed largely promotional in nature and written off as a loss. In 2008, Morris said, the music company generated tens of millions in revenue from its music videos.

"This is the next step in taking the video, which is more important than just an audio stream, to the next level of monetizing it," Morris said.

Analyst Verna isn't sure music videos will bring the financial windfall Morris and YouTube hope.

"Clearly, there's some monetization potential," Verna said. "I'm not sure how much it is, or how significant a focus it is for the labels. Clearly, they're trying to make it work."

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dawn.chmielewski@latimes.com

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