Digital Media

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.

Vevo's launch glitches appear to have been resolved.

(Credit: Vevo)

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.

Vevo, the new music-video site operated by Google (which owns YouTube) and co-owned by three of the four major labels (EMI, Sony, and Universal; Warner Bros. not participating), launched on Tuesday to some fanfare in New York. Big music celebs rubbed elbows with Google and label execs in the kind of self-congratulatory bash that only the entertainment industry can pull off.

This is as far as I got when I tried to play U2's video for "Even Better Than The Real Thing" on Vevo.

Maybe that's too harsh, but I visited the site on Wednesday and I quite honestly can't figure out who or what it's for. It's got music videos, but only from three of the four majors and some independent distributors, which leaves huge swaths of the entertainment landscape blank. As far as I could tell from a search of the site--and the search engine should work, given that Google's behind the site--Vevo is sadly lacking in classic rock and modern indie rock, which are the two genres I listen to most.

There's no Roger Waters or Pink Floyd. No Pixies. No Grizzly Bear. No Led Zeppelin. No Animal Collective. No Beatles. No Eric Clapton. And on and on and on. Go ahead and try your own, you'll get the idea--if you can get the site to work to work at all. (It's been plagued by glitches since launching, and my effort to play U2's "Even Better Than the Real Thing" around 1 p.m. Wednesday met in failure--the video froze around 80 percent loaded.) Apparently, if you can get a video to load, you'll probably have to watch a video advertisement before it starts.

The aforementioned artists are all over the place on YouTube--a site that everybody knows and loves and is largely free from video advertisements. And because Google is behind both sites, videos licensed for Vevo will also appear on YouTube, with Vevo getting the credit (and ad bucks) when a YouTube viewer watches a Vevo video. So why would anybody go to Vevo? Why bother building it, instead of just making it a new channel on YouTube? Who is this for?

The music industry, that's who. It wants to control the online music video experience--Universal Music Group CEO Doug Morris flat out said so. They're tired of mean old Google using its content to sell advertisements. But I honestly can't imagine why Google agreed, unless the labels held it over a barrel, refusing to license their content for YouTube unless Google agreed to help them create a music-industry answer to TV-streaming site Hulu.

Here's the thing. The big winners in the old music industry of yesteryear don't like the Internet. U2 manager Paul McGuinness has said that Internet service providers should bear part of the blame for piracy. Doug Morris earned some scorn two years ago for a Wired interview in which he revealed that his label didn't even try to come up with a digital strategy in the early days, when P2P file-trading networks first started becoming popular.

If you don't like the Internet, you're not going to be able to create an Internet service that people like. More than 15 years into this Interwebs thing, some people still don't understand that if they create an experience that users don't like, it won't get used. It's like they're still living back in 1973 when we only had three TV networks and one or two daily papers and a handful of local radio stations. We now have unlimited choice. Offer me something better than what's out there now, or please, save yourself some money and effort and get out of my way.

Hulu succeeded not only because the TV companies played hardball, refusing to license their content too broadly to other distributors, but also because it launched strong, with a big selection of desirable content. Vevo could certainly turn itself around, but its launch doesn't look very promising. I suspect it'll end up like every other entertainment industry effort that offers no clear benefit to users: on the digital scrapheap.

Google CEO Eric Schmidt celebrated the launch of music-video site Vevo in New York and he doesn't appear worried that his company might be helping create a future YouTube competitor.

(Credit: Greg Sandoval/CNET )

NEW YORK--Eric Schmidt's presence at a swanky music industry gathering was an illustration of how far digital technology has come and the power it has amassed.

A decade ago, the film studios and top record companies dismissed Northern Californians as a bunch of bearded dweebs who liked electronics. Five years ago, with illegal-file sharing spinning out of control, the entertainment industry looked on techies with fear and loathing, invaders to be repelled before they made off with the treasure. It wasn't that long ago that some in Hollywood considered Google a "rogue company."

Pfft. That's all in the past. On Tuesday, at a launch party for music-video site Vevo, the Google CEO was an honored guest. Schmidt was seated front and center in an area reserved for music industry titans and major recording stars. He rubbed elbows with singers Shania Twain and Sheryl Crow. He chatted up record producer and label exec Jimmy Iovine. He sat and visited with Doug Morris, CEO and chairman of Universal Music Group, the largest of the four top recording companies, as well as the chiefs of Sony Music Group and EMI.

And why shouldn't they show him some respect? Not only is he at the helm of the most successful advertising company in the world and operating YouTube, the Web's No. 1 video site, but Schmidt is also helping to get Vevo off the ground. Instead of trying to stand in the way of a music-video site that is in many ways breaking away from YouTube, Google is providing the service with technological expertise and allowing it to continue to market to YouTube's massive following.

What's that? Google booked $21 billion in revenue in 2008. How can a company like that be satisfied to play rhythm guitar in someone else's band?

Bono, Lady Gaga, Schmidt at Vevo bash (photos)

At the Vevo party, Schmidt said Google couldn't be happier with the situation. This is what he's done for over a year now, held out his hand to big newspapers, film studios, TV networks, and book publishers. By taking a backup role in Vevo, Google sends a message that the rogue image is garbage and the company is prepared to go a long way--even give up decision-making power--to help partners grow their businesses. No threat here.

In many entertainment circles, that message may resonate, especially the ones where the digital revolution has laid waste. Some of the celebs at the Vevo launch were only too happy to tell Schmidt and everyone else how badly recorded music has suffered.

"We've come here to mourn the death of an old cash cow that was the music industry," U2's Bono told the audience during his speech.

"Let's hope Vevo can help salvage something that used to be amazing," said singer Mariah Carey.

If you're anti-copyright and this makes you long for the days when Google and YouTube used to wave the Digital Millennium Copyright Act in the faces of Viacom, NBC Universal, and others that demanded YouTube remove unauthorized film and TV clips from its site, well, it's time to move on.

For more than a year, YouTube's strategy has been to strike partnerships with the top studios, record companies, and TV networks.

Doug Morris, Universal Music Group CEO and the man who came up with the idea for Vevo, waits to shake Schmidt's hand at the Vevo launch party.

(Credit: Greg Sandoval/CNET )

YouTube has content deals with MGM Studios, Sony Pictures, Lionsgate, CBS (parent company of CNET), and all four of the major recording companies.

What probably drove Google to take a softer stance was competition. There might have been a period a couple of years ago when Google could have easily morphed into a video-on-demand service, offering feature films and TV shows and been all things Web video. But it played hardball and NBC and News Corp. successfully came up with a YouTube alternative: Hulu.

The competition between the companies to obtain premium films and shows has been fierce. After pursuing a deal to get full-length content from Disney, Google saw Disney sign with Hulu. That was a bitter blow. Google isn't used to losing.

At the same time, Netflix has jumped into the fray. The Web's top video-rental service has deals with makers of set-top boxes that enable customers to watch streaming Internet video on their TV sets. Apple has a slice of this market as well.

Meanwhile, Hulu could have tried to woo the music labels away from YouTube. Hulu could try to capitalize on any lingering distrust of Google at the labels. Conspicuously missing from Vevo's launch party was Warner Music Group CEO Edgar Bronfman. A feud between Warner and YouTube led to Warner's content being pulled from the video site for nine months before the companies made up. But Warner has so far declined to join Vevo.

In addition, EMI recently penned a music-licensing deal with Hulu. EMI clips will appear on both Hulu and YouTube.

In his speech introducing Vevo, Universal Music's Morris was generous in his praise of Schmidt and Google. But the former songwriter also raised questions about who he was referring to when he said things such as "the best thing about Vevo is that it's our platform" and "no more middlemen" and "we can experiment with anything and everything we want. We don't have to ask anyone's permission anymore."

On August 1, 1981, a cultural and entertainment juggernaut flickered onto TV screens and rocketed out of obscurity with these six words: "Ladies and gentlemen, rock and roll."

With that, the iconic cable network, MTV, was launched and a popular entertainment category--music videos--was born. Now, 28 years later, MTV has largely abandoned the genre and the record industry is preparing for the debut of a possible successor.

On Tuesday, video start-up Vevo is scheduled to launch. Supported by three of the top four largest record companies (sources say EMI has agreed to provide content to the site) and backed by the technological muscle of YouTube, Vevo is a Web site that will feature videos from many of the world's biggest recording stars, including U2, Cold Play, the Black Eyed Peas, Lady Gaga, Avril Lavigne, Bruce Springsteen, and Pearl Jam, according to the site's backers.

The move comes three years after Google's YouTube began proving that the masses still love music videos. Professionally made music clips are by far the most popular fare on the Web's No. 1 video site, accounting for 14 of the 25 most viewed clips ever. The labels involved with Vevo boast a combined total of about 15 billion views on YouTube.

Much of the music industry, including a score of independent labels that have recently signed on to the project, think it's time for music videos to take the next step in their evolution. They want a standalone site packed with high-definition clips from marquee acts.

Don't look for any user-generated content on Vevo, according to Doug Morris, chairman and CEO of Universal Music Group, the man who came up with the idea for the service. He said he wants to offer music fans as well as advertisers a more polished digital stage. That's one of the main reasons the venture was built, to charge advertisers premium rates in exchange for premium content.

Another motivation for building the site was to give the music industry a greater say in what happened to its content.

In an interview with CNET last week, Morris made no bones about the fact that by launching Vevo, the music industry is serving notice: no longer will middlemen or third parties profit from the labels' video content without giving up a fair share.

"What we're really doing is taking back control of everything," said Morris, who operates the largest of the top four recording companies. "This is us taking control of our future...Vevo enables us to provide consumers with about 80 percent of all the music videos in the world. So, this is really like MTV on steroids. We're starting with that kind of audience. But now we're in control of it. We don't have to go through a middleman anymore."

The problem as defined by the music sector started with MTV and extends all the way to YouTube.

When MTV was created, everyone told the labels not to worry about getting paid because the cable channel helped promote artists. "It was good exposure," they were told. The experts said the same thing in 2006 when YouTube started to emerge as one of the Web's favorite music sources. For a long time, the record companies seemed happy to go along, even as MTV built a financial empire from the videos.

But this time around, the music industry can't afford not to be the one who cashes in. The rest of the business is in decline, as CD sales shrink and profit margins on downloads are sliver thin. Record execs have been criticized for not finding new revenue models, so that's what they are trying to do. They believe there's new money to be had from the videos, even as they readily acknowledge that getting to it hasn't always been easy.

Morris remembers seeing a video from a Universal artist posted to Yahoo a couple of years ago and asking one of his employees what the portal paid for it. The exec told Morris the video was considered promotional and Yahoo paid nothing.

Promoting what? The video was five years old and Yahoo was pocketing the ad money without sharing it with the creators, Morris recalled telling the employee.

"I then called up (former Yahoo CEO) Terry Semel," Morris said. "And I said, 'Terry, we want to be paid.' Semel replied 'Absolutely not.' Then, we took our videos down from Yahoo and AOL and their viewership declined, at which point they came back and they paid us. They paid us a percentage of a cent for each view."

Morris isn't implying that Vevo's music clips will no longer be used to promote music or that Vevo plans to charge to watch videos. No, they will still be offered to viewers free of charge.

What is changing is that music videos, which often cost tens of thousands of dollars to produce, won't be treated as loss leaders anymore--not in this economic environment.

Nonetheless, Vevo faces plenty of challenges.

Nobody has proven whether advertisers are willing to pay top dollar for online videos, even professionally made music videos. There's also the question about whether interest in the genre will wane just as did with previous generations of music fans. After all, MTV switched to reality shows for a reason, no?

Rio Caraeff, Vevo's CEO, says the music video is only one of the site's features. The obligatory playlists will be available but music lyrics will also be offered. Visitors will have more access to their favorite performers than ever and Vevo's video quality will be as much as three times as what is typically available online.

All these upgrades were absolutely necessary to draw the kind of top advertising dollar that label honchos seek, according to Caraeff. He said typical ad rates for Web video run somewhere between $3 and $8 for every thousand views. Vevo's mission is to attract rates of $25 to $40.

"Successful was how we felt about YouTube, in terms of the shear popularity of our programming," Caraeff said. "But what we felt was that there could be a better way to drive a business around it. Advertisers had some reticence and some reluctance to fully embrace music videos on YouTube. We felt that there was work to be done to restore the premium luster and really create a better experience for advertisers."

In the short run, look for Vevo to be an online music store where downloads are sold as well as the merchandise created by artists, such as clothes and perfumes. In the long run, a music-video subscription service could be rolled out, one that offers full-length concerts.

"I do believe we will have a subscription service where we will stream live concerts from all over the country to viewers for a monthly fee," Morris said. "This is futuristic. We have not built this yet, but we're working on it."

Executives of online music video service Vevo are close to finalizing an agreement that will bring content to the site from EMI, the smallest of the four top recording companies and the label of Coldplay, Katie Perry, and Norah Jones.

EMI's New York headquarters.

(Credit: Greg Sandoval/CNET)

The deal between Vevo and EMI could be announced at any time, sources familiar with talks told CNET.

"EMI is in discussions with Vevo," EMI spokeswoman Jeanne Meyer acknowledged, though she declined to disclose the current stage of the talks.

Scheduled to launch on Tuesday, Vevo will soon be able to offer music videos and other content from three of the four top labels: Universal Music Group, Sony Music Entertainment, and EMI.

The only major record company not partnering with the venture is Warner Music Group. Sources said talks between Warner and Vevo continue.

Universal Music founded the service earlier this year, aiming to cash in more on the popularity of music videos. At YouTube, which is powering back-end operations for Vevo, Universal's videos have accumulated the most views of any YouTube channel.

Universal has long wanted a standalone site to showcase video content, which includes traditional video but may also include other video content produced by artists.

Of YouTube's 25 all-time most watched videos, 14 are music videos. EMI recently signed a video-licensing deal with Hulu.

Universal Music Group and YouTube have answered the question of whether any of the major labels will be interested in joining the new all music video Web site, Vevo.

Sony Music Entertainment has joined the venture, the companies said Thursday in a statement. Vevo will launch sometime later this year featuring video content from at least the two largest recording companies. (Universal is the largest.)

Some of the acts represented by the two labels include Amy Winehouse, U2, Bruce Springsteen, Duffy, Alicia Keys, Beyonce, Eminem, AC/DC, Kelly Clarkson, Lady Gaga, Carrie Underwood, Mariah Carey, Akon, The Killers, Mary J Blige, Black Eyed Peas, and Justin Timberlake.

Warner Music and EMI have yet to sign up, but music industry sources say that talks between the companies continue. Vevo is the brainchild of Universal Music CEO Doug Morris, who has long dreamed of a standalone video site where his artists' music videos would be the marquee product.

MTV turned music videos, which were once considered little more than a promotional tool for the labels, into a gold mine 30 years ago. Since then, music videos are far and away the most popular content on YouTube.

Vevo will not only feature traditional music videos, but possibly also present reality shows, video blogs, and other content built around artists. Universal said in the statement that it is also looking for outside investors.

While the labels will supply the content for Vevo, YouTube will look after all the back-end chores. Vevo will likely name former Universal Music exec Rio Caraeffas president.

Universal Music CEO Doug Morris partnered with Google's Eric Schmidt on Vevo. Now Sony Music Entertainment is joining the venture.

(Credit: Universal Music Group and Stephen Shankland)

Rio Caraeff

(Credit: Anne Gim)

Rio Caraeff, executive vice president of Universal Music Group's eLabs, is expected to be named president of Vevo, the music video site formed by Universal Music and YouTube, sources close to Vevo said.

Universal and YouTube officially unveiled Vevo in April, saying it would be a showcase for the major labels' music videos and other video content. The site is expected to launch later this year, and Universal and YouTube executives continue to negotiate with the other three major recording companies--EMI, Sony Music, and Warner Music Group--to bring their content into the fold.

Vevo is the brainchild of Universal Music Group CEO Doug Morris, who has long sought a way to distribute his company's music videos in a high-quality format. Universal's YouTube channel is by far the most watched on the entire video site.

Caraeff formerly led E-Labs, a digital business unit of Universal Music, the largest of the labels. Prior to that, he led Universal's mobile unit and he's also worked at Sony Pictures Digital. He is expected to be formally named president when Vevo launches.

Caraeff is known for his willingness to embrace technology and its role in the entertainment industry. In January, Caraeff praised YouTube for its shift in focus toward monetization of online video, saying "They have finally turned the spotlight on 'How do we turn this into a business' and that's benefiting the entire ecosystem of content owners as well."

One of these days, Google is going to need to find a way to wring money out of YouTube, but at least it has a lot of room to grow.

If you're a glass half-full kind of person, then a report out Friday from Bernstein Research's Jeffrey Lindsay (as spotted by MediaMemo) should resonate. One of YouTube's main revenue-generating issues is that companies don't necessarily want to advertise next to videos of a fireman lighting himself on fire, or TMZ's bizarre interview of the Houston Rockets' Ron Artest, both among the most popular videos on YouTube at the moment.

But Lindsay believes that YouTube has been able to increase the number of videos suitable for advertising to around 9 percent of YouTube's inventory. That doesn't sound like much, but it's up from around 3 percent last year, according to MediaMemo, and could reach 15 percent next year.

The concern, of course, is that despite YouTube's enormous traffic--it's the single-largest part of Google's outbound bandwidth--upstart Hulu could have an edge with advertisers because of the quality of its content. That's part of the reason YouTube is involved in Vevo, a joint venture with Universal Music Group to create a standalone site for music videos.

Universal Music CEO Doug Morris is partnering with Google's Eric Schmidt on Vevo.

(Credit: Universal Music Group and Stephen Shankland)

Universal Music Group and Google are now partners in the music-video business.

The largest of the four top recording companies and YouTube's parent company announced on Thursday that they are working together on Vevo, a new music and video entertainment service set to launch later this year. YouTube will handle the technology while Universal Music supplies the content. The two companies will share ad revenue.

The companies said and at this point it appears that Universal's content and artists will be the only label represented on the site. However, Doug Morris, Universal Music's chief executive, said in a conference call with the media that he is in negotiations with other top record labels and is confident they will join.

Google CEO Eric Schmidt said on the same conference call that YouTube and Universal Music have renewed their existing licensing agreement. YouTube will continue to be licensed to allow visitors to use songs from Universal Music. Professionally made videos from the label will only appear on Vevo, the companies said.

This is the first time that YouTube has launched a satellite Web site, Schmidt said but he added that he hopes there will be more.

For Universal Music, the move means that Morris has obtained the standalone music-video service that he has long wished for. Ever since MTV became a cultural force and huge financial success by offering music videos on TV, the record industry realized that it goofed in thinking of music videos as a promotional tool. Morris has said that in this era of declining revenue in the sector, he doesn't see anything as "promotional" and argues that music videos are worth cash.

In September, CNET reported that Morris was looking for a way to build his own video site. It appears now that Morris already had the partner he needed in Google. Sources close to Universal Music said last year that Morris wanted his artists' videos to be given a higher profile and presented to viewers with higher-quality video than what YouTube offered. But where could he go to find an audience as gigantic as YouTube's? Vevo undoubtedly will have what Morris wanted.

For Google, which acquired YouTube in 2006, the agreement continues the company's streak of signing partnerships with top entertainment companies. For the past year, YouTube has been steadily shedding its rogue reputation among music, film, and TV companies.

On Monday, CNET reported that Sony Pictures is in talks about licensing some full-length films to YouTube.

When it comes to challenges, the new joint venture faces plenty. While Universal Music's YouTube is by far the largest on the site, with nearly 4 billion views, nobody knows for sure whether a standalone music-video site can attract a big audience or ad revenue.

The question is whether Universal Music's content is attracting viewers to YouTube or whether visitors stumble on to the videos while they are already on YouTube. Either way, the companies say they are confident that the site won't have any trouble drawing fans.

"We believe that at launch, Vevo will already have more traffic than any other music video site in the United States and in the world," Morris said in a statement, presumably referring to the traffic Universal sees at its YouTube channel." And this traffic represents the most sought after demographic for advertisers, especially as advertising dollars continue their shift from old media to new."