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Vevo founder warns Google: Sweeten deal or we'll go elsewhere

In a Q & A, Doug Morris says he will pull Vevo's music videos from Google's YouTube and shop them around to its competitors if it doesn't reduce its fees.

July 11, 2012|By Alex Pham, Los Angeles Times
  • Alicia Keys and Doug Morris attend Sony Music Entertainment 's Grammy reception in West Hollywood.
Alicia Keys and Doug Morris attend Sony Music Entertainment 's Grammy… (Lester Cohen / WireImage )

Industry veteran Doug Morris, the chief executive of Sony Music Entertainment and founder of Vevo Inc., has issued a threat to Google Inc.: Give us a better rate for our music videos or we'll take them elsewhere.

Morris, who launched his music career in the mid-1960s by writing the Chiffons' song "Sweet Talkin' Guy," now is talking tough when it comes to renewing Vevo's contract to distribute its videos on Google's YouTube when the deal expires at the end of the year.

That's a serious threat given that Vevo — which features videos of Katy Perry, Justin Bieber, Rihanna and about 11,000 other artists — is YouTube's most popular channel, according to ComScore Inc. In May, Vevo's videos generated 617.8 million views on the site, which Google acquired in 2006 for $1.65 billion.

"Google is charging us a lot of money to put our videos on their platform, and we would like them to reduce their fees," Morris told The Times in the first public airing of his grievances. "If not, there are at least three other companies who want to take our videos."

Among the companies eager to lure Vevo's formidable traffic away from Google are Facebook Inc., Microsoft Corp., Apple Inc.and Amazon.com Inc., Morris and another top industry executive familiar with the matter said.

For its major video contributors, YouTube keeps 30% to 50% of the net advertising revenue, after a 10% sales commission is paid. Morris would not specify Vevo's cut with YouTube.

"Vevo is a great partner that has built large audiences on YouTube. We hope to continue our fruitful relationship with them," YouTube said in an emailed statement.

Although Morris does not play a role in operating Vevo (it's run by former Universal Music executive Rio Caraeff), he continues to track the company closely as head of Sony Music, which owns a minority stake in the music video channel.

He is also the one who conceived the idea for Vevo after seeing his grandson watching a music video on Yahoo in 2007.

When he was chief executive of Universal Music Group, Morris learned that music labels and their artists weren't getting paid for the videos, even though sites that hosted them collected advertising revenue. That lopsided arrangement gnawed at him for several years, partly because it echoed an error made by the music labels in the 1980s when they gave away their music videos to MTV as a way to promote record sales.

Determined not to repeat that mistake, Morris came up with a solution: Vevo. Founded in 2009 as a joint venture between Universal, Sony and later Abu Dhabi Media Co., Vevo licenses videos to online sites on behalf of record labels. The New York company, now valued at $800 million to $1 billion, last week signed a contract with investment bank Allen & Co. to help it raise $100 million to expand overseas.

In an interview with The Times, Morris talked about the original concept for Vevo, the company's early days and its current place in online media.

Question: When did you first begin to think about online music videos as a business?

Morris: I was watching my grandson pull up aDr. Dremusic video on Yahoo. I called the president of my company, and I asked, "What are we getting paid for this video?" He said, "Nothing." So I called Terry Semel [then chief executive of Yahoo in 2007], and I asked him for eight-tenths of a cent for every play or we'd take the videos off his site. He said take them off. And we did. Their viewership went down.

Q: You then struck an arrangement with YouTube for that eight-tenths of a cent. But then you came up with an even better idea in Vevo, which would sell its own ads at a higher rate than what YouTube was charging. How did that come about?

Morris: I was walking down the street in Long Island, where I live, on a beautiful Saturday afternoon, thinking about how we could take music videos to a new level. We were just being decimated by piracy, and I wanted to figure out a way where we could be compensated for the work that we and our artists do. Then it struck me. I called [U2's] Bono and asked if he would introduce me to [then-Google CEO] Eric Schmidt. He did, and I got an email from Eric saying, "I'll be there Monday morning at 10:30."

On Monday, he's in my office, and half an hour later, we shook hands on the main points. Twenty minutes later, we met with [Sony Music CEO Rolf] Schmidt-Holtz and Sony was on board. Then we got EMI and the independent labels.

Q: What was the deal that you pitched to Eric Schmidt?

Morris: Google was paying Universal tens of millions of dollars a year in fees for our music videos. When I met with Eric, I said, "Set us up with our own page on YouTube. We'll handle the ad sales, and we will give you a percentage of the money that we get. You no longer have to give us money."

Q: So Vevo was able to grow the pie and generate more ad revenue. Labels got paid more. And YouTube sat back and collected the money. Sounds ideal. What's the issue now?

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