Vevo CEO and President Rio Caraeff more or less confirmed on Wednesday my suspicion that the music service was not created to serve a new need for consumers. Rather, it was built to help advertisers and content owners (including labels, artists, and music publishers) capitalize on music videos, and to help Google (YouTube's owner) offload some of the cost associated with administering rights to them. In other words, this isn't a business-to-consumer play, it's more of a business-to-business arrangement.
As he put it: music videos are popular online, fans like them, and content owners think of them as premium content. But they're too widespread, appearing on YouTube, AOL, and many other sites, and the user experience is way too varied--when a user searches on a song name at YouTube, they might get multiple copies of the exact same music video, plus user-posted remixes, live versions shot with a cell phone camera, and even parody versions. More generally, music videos grew up as a promotional tool for albums, and advertisers and users have come to see them as a commodity rather than prime product. Consequently, advertisers haven't been willing to pay much to place their messages next to them, and online music videos have lost money at a "staggering" scale.
Vevo is meant to provide an online clearinghouse for label-approved music videos--the kind of professionally shot videos that often cost half a million dollars or more and used to form the backbone of MTV. Vevo will be the exclusive distributor of these videos, and will handle all licensing and ad sales, although partner Google is handling the actual video hosting and streaming. In other words, if you're running a video site and you want to post a video that's in Vevo's catalog, Vevo will be your only source. By enforcing scarcity, giving advertisers a central place to buy ads, and controlling the user experience--for example, ensuring that there aren't many copies of the same video on YouTube--Vevo believes that advertisers will be willing to pay much more to appear next to these videos. So far, this seems to be true: according to Caraeff, advertisers have been willing to pay between $25 and $40 per thousand views (CPM, in advertising parlance) for Vevo-provided videos, compared with average market rates of $3 to $8. Caraeff claimed that artists and publishers will get about 50 percent of all revenues from these ads--a much higher percentage than they earn from recordings. This is why Mariah Carey and U2 were so excited about the launch.
Interestingly, Vevo will also curate unlicensed videos. For example, if somebody creates a remix of a Beyonce song with an associated video, and it becomes a runaway hit, Vevo might try to claim the video, add it to the Vevo catalog, and handle licensing for its content owners. Caraeff claims they're not going after the home video of your dog skateboarding to your favorite song, but professional-looking videos that have never been claimed, and therefore aren't making any money for anybody. (YouTube doesn't sell ads against unclaimed content for fear of copyright liability.)
So what's in it for Google? Simple--although YouTube has tons of viewers, it also has more inventory than it can sell advertisements against. Licensing for music videos is complicated, and not in Google's core area of expertise. Google is happy to hand this task off to Vevo and accept a lower percentage of advertising dollars because it believes the cost savings and higher CPMs will eventually make business sense.
Finally, about the botched launch: As Caraeff explained, Vevo was basically a B2B play, and the company didn't expect many users to visit its site on the first day. But the publicity created by the big launch party drove massive interest, and the company got more traffic in its first hour than it expected for its entire first year. For what it's worth, the company has added 32 servers in the last 24 hours, and I'm now able to get videos to play on the site with no problem.
In addition, Vevo didn't think it was critical to launch with a full complement of content--remember, it's mainly a back-end and clearinghouse for YouTube and other sites, and if you were watching videos there yesterday, you'll still be watching those same videos there tomorrow (as long as a takedown notice hasn't been issued). So Vevo launched with only about 15,000 videos from Sony and Universal Music. In January, it will add about 30,000 more from EMI and several independent distributors.
I still don't understand why they launched Vevo.com as its own Web site, but at least I understand the thinking behind the company. It won't change my behavior--I'm still going to YouTube, and if a video happens to be provided by Vevo, I'll know that the artists are making some money from it. Fair enough.