Digital Media

The disagreement between Warner Music Group and YouTube over music licensing appears to be coming to an end.

(Credit: Warner Music Group)

The two sides have managed to reach terms on most of the major issues and a final deal could be announced within the next few weeks, sources with knowledge of the talks, told CNET News on Friday. What that means is the music and videos from such Warner acts as Green Day, Red Hot Chili Peppers, and the White Stripes may soon be back on the Web's largest video site.

The thaw comes nine months after the prior licensing agreement between the companies expired and negotiations to renew broke down. Warner's music videos were removed from the Google-owned YouTube in December and users were banned from including the label's songs in their clips.

Representatives from both companies declined to comment.

CNET reported in July that the companies had begun a new round of discussions. When the deal is signed, it will mean that YouTube once again can boast agreements with all four of the largest recording companies: Universal Music Group, Sony Music Entertainment, Warner, and EMI.

A Warner partnership will continue YouTube's string of signings with major content companies. In the recent past, YouTube has locked arms with Disney, Sony Pictures, and the U.K.'s Performance Right Society.

Peter Sunde Kolmisoppi, Fredrik Neij, and Gottfrid Svartholm Warg.

(Credit: The Pirate Bay)

Media companies will struggle to grab any money owed by The Pirate Bay, as Sweden's official debt collector found that three of the four founders have "no attachable assets" in that country.

In April, a group of 13 media companies, including Warner Music Group and EMI, asked the Swedish government agency, commonly known there as the "bailiff," to collect more than 30 million Swedish Kronor, or about $4 million on their behalf.

This was the amount the media firms were awarded by a Swedish judge after finding four men associated with The Pirate Bay--Peter Sunde Kolmisoppi, Fredrik Neij, Gottfried Svartholm Warg, and Carl Lundstrom--guilty of copyright violations. The men were also sentenced to a year in prison.

But on Monday, the Swedish newspaper Di.se, reported that the bailiff can't find anything to collect for Neij, Warg, and Lundstrom. In addition and perhaps most importantly, the bailiff rejected claims made by the media companies that Reservella, the firm listed as the official owner of The Pirate Bay, is a shell company controlled by The Pirate Bay founders.

The decision by the bailiff might have more significance if the acquisition attempt by Global Gaming Factory X, the software maker and operator of Internet cafes, didn't appear doomed.

In June, Global Gaming announced it had agreed to pay about $8 million, half in cash and half in Global Gaming stock, for The Pirate Bay. Global Gaming CEO has said for weeks the deal would be completed by this Thursday. The transaction appears seriously threatened now after Swedish exchange officials halted trading in the company's stock on Friday over concerns about whether Global Gaming has adequate financing to complete the purchase. There is also a criminal investigation into possible insider trading involving the company's stock.

Questions have also been raised about the accuracy of some of the claims made by Global Gaming's CEO Hans Pandeya. One example is that he said he received a $10 million bid from Napster co-founder John Fanning, uncle of Shawn Fanning. The elder Fanning denied Pandeya's claim.

One part of the claims made by the entertainment industry is that the founders were the ones who negotiated with Pandeya and other Global Gaming leaders. Sources close to Global Gaming told CNET this weekend that Pandeya finalized the agreement with the founders.

According to Di.se, Pandeya has told the bailiff that he doesn't know who is behind Reservella. The major music labels have pressured Pandeya to turn over any money he pays for the site to them. The Pirate Bay's founders have denied owning The Pirate Bay since 2006.

The bailiff said it could not connect The Pirate Bay founders to Reservella and just because they oversaw negotiations, doesn't prove that Reservella is a dummy corporation, according to the report in Di.se.

Should Pandeya come up with the money for The Pirate Bay, it's unclear whether the music and film industries could require him to turn it over to them.

Eos-based Paramore.net

Warner Music Group announced Wednesday that it has expanded its partnership with Cisco Systems, using the tech giant's software platform to power more Web sites for its artists.

Warner Music is the first and only company that has said it is using Cisco's Eos social media software platform. Cisco announced the platform and hosted service in January.

The service, called Eos, allows media and entertainment companies to create, manage, and grow online communities. Through Eos, Cisco has compiled technology tools and slapped on an easy-to-use interface to make building and customizing Web sites easy. But most importantly, it's bundled into the software technology that will allow media companies to build interactive Web sites so that fans can connect with musicians, TV shows, movies, or whatever brands they want to promote.

Initially, Warner Music Group used the platform to develop Web sites for two artists, Laura Izibor and reggae singer Sean Paul. On Wednesday, it announced it has expanded that relationship to include sites for other artists, such as Paramore, R&B singer Trey Songz, rock band Halestorm, and a redesigned site for Sean Paul. By the end of the year, Warner Music Group has committed to creating 12 additional artist Web sites using Eos, including sites for "American Idol" alum Jason Castro, R&B singer Estelle, and hip-hop artist Lupe Fiasco.

With Eos, Cisco has essentially created a template for building and designing Web sites. Michael Nash, executive vice president of digital strategy and business development for Warner Music, said that Eos allows the company to develop a Web site five times faster than it could on another platform. And a strong online presence is something that Warner Music executives hope will lead to new revenue streams for its artists' content.

Edgar Bronfman, chief executive at Warner Music, noted the importance of using the Web to reach out to fans and music consumers.

"We clearly see the entertainment industry in a phase of tremendous transition," Bronfman said during a press conference Wednesday.

Cisco CEO John Chambers said that he believes Cisco's Eos platform could "change the music industry forever."

"When you look back five years from now, you'll see that what Warner Music is doing will change the industry, and others will follow in its footsteps," he said.

But Eos is more than just a platform for creating new Web sites. The software also allows media companies, such as Warner Media, to collect and analyze data about their users. For example, data can be used to identify "influencers," or people within the fan community who generate comments or traffic on the site. Data about these types of individuals could be culled to develop new features. Or data could be collected about certain users' behaviors to create more tailored content or marketing opportunities.

"We are still in the early stage of figuring out how to use this data," Dan Scheinman, the Cisco executive behind Eos, said in a phone interview after the press conference. "And much of what can be done with the data will be based on Warner's privacy policies."

Nash emphasized that the company is committed to protecting individual fans' privacy, but he noted the usefulness of this data for improving the site and finding new ways to monetize content.

Bronfman said that using other social-networking sites along with new, rich fan sites could help breathe new life into the industry, which has been hit hard by declining CD sales and piracy. And he sees the platform creating a vehicle for new business models. For example, he noted that the rock band Paramore has been offering a special box set on its Web site that has outsold the band's regular album 13 to 1. He said that other revenue streams could be added as well, such as backstage tickets or presale tickets that allow fans to come to rehearsals. Ultimately, he said it will be up to each band to decide how they use their site.

For Cisco, the move into providing a managed service for creating and maintaining Web sites is a huge leap from its traditional business of building routers and switches to shuttle packets around the Internet. Some critics of the company believe that Cisco, which is also diversifying into other areas such as consumer electronics, is spreading itself too thin. And a new corporate structure of creating development councils to create and usher in new businesses has been met with criticism from some journalists and bloggers who question whether all this collaboration is really effective.

But Scheinman said that the new corporate structure has allowed his division of 60 individuals to develop and grow much like a start-up.

"Sure some people are saying, 'Where's the revenue?'" he said. "But I think there is an understanding from John (Chambers) and others in the council that this has the potential to be big. And I think the new structure has created a place where people can work together and collaborate. Our core business is building networks, and this corporate structure allows us to tie everything together into something that realizes a much bigger vision."

Chambers himself said during the press conference that the music industry is valued at $1.3 trillion. Exactly how much of that money can end up in Cisco's coffers is unknown, but he believes the Eos platform could help grow the market, ultimately creating more opportunity for Cisco. And the more content that is shuttling across the Internet as people download and listen to music or check fan pages, the better things are for Cisco because all that traffic ultimately creates a need for more of Cisco's core products.

Keyboard Cat rocks out with Hall and Oates' band on YouTube.

(Credit: YouTube)

This is really quite sad.

Citing copyright concerns, YouTube has deleted the audio from a hosted video that depicts the Internet meme "Keyboard Cat" showing up in a vintage TV after-school special and then embedded in the foreground of the '80s-era music video for the song "You Make My Dreams" by pop duo Daryl Hall and John Oates. It was an extremely awesome match, because the musical feline fit into the minimalist Hall & Oates video a little too well.

The audio appears to have been deleted on behalf of music label Warner Music Group. "This video contains an audio track that has not been authorized by WMG," a message adjacent to the video read. "The audio has been disabled."

The Keyboard Cat-Hall & Oates video was getting popular, with over 375,000 views on YouTube in fewer than two months and press from blogs like the AOL-owned Urlesque, so it's not quite clear whether WMG was alerted to the video directly or if the sound was pulled because an audio fingerprinting technology trawled through it.

Earlier this year YouTube started giving people who uploaded videos with copyrighted content the option to silence the video rather than have it taken down. As my colleague Greg Sandoval noted at the time, while YouTube once had deals in place with all four major record labels, its deal with Warner fell through.

So there goes one of the greatest music videos to hit YouTube ever. (In my opinion, of course.)

"I hate you, Warner Music Group," one commenter on the muted YouTube video wrote. "This video is hilarious and promotes a song that would otherwise never reach the ears of young people. What is wrong with you? When did the music industry go so wrong?"

Other comments are along the lines of "NOOOOOOOOOOOOOOOOOOOOOOOOOOO" and "A f***ing injustice to the world."

So, clearly, I am not the only one saddened by this takedown. It's a quintessential example of the music industry missing the point. The presence of a funny video that makes it look like a cat has joined Hall & Oates' band is not going to suddenly make hordes of people start pirating the duo's songs who otherwise would've paid for them. In fact, as commenters pointed out, some of the Internet-meme-savvy kids who were swapping links to the video probably had no idea who Daryl Hall and John Oates are. (Embarrassing confession: I bought "You Make My Dreams" on Amazon MP3 after the Keyboard Cat video got it stuck in my head.)

The Internet breaks plenty of new trends, but it can also make older bits of media rocket back into the spotlight. If the label with the rights to onetime pop star Rick Astley's catalog had freaked out over the ubiquity of "Never Gonna Give You Up" on YouTube, for example, Astley (whom I had never heard of before the "Rickrolling" phenomenon took off) would not have been lip-syncing on top of a float at the Macy's Thanksgiving parade last year.

I understand that traditional media rightfully has a lot of qualms about copyright alternatives and "remix culture," some aspects of which are fairly radical, and Hall & Oates have a history of tightly guarding their catalog. But every time there's another instance of copyright-induced silliness like pulling the audio from an innocuous Internet sensation, it just makes me shake my head and wonder when, if ever, they'll finally get it.

It's time for Keyboard Cat to play the record labels off.

Six months ago, talks between Warner Music Group and YouTube over the licensing of the label's music videos broke down, and since then, anyone looking for official clips from acts such as The Red Hot Chili Peppers, Death Cab for Cutie, and Green Day has likely been disappointed.

That presumably could change as the companies have entered into a new round of talks, according to two sources with knowledge of the negotiations. While the companies have spoken several times over the past half year, the most recent discussions are more serious, the sources said.

No deals have been worked out and there's a long way to go before any agreement is reached, said the sources. But they added that the mini-cold war between YouTube and Warner Music may be thawing.

Representatives from Warner Music and YouTube declined to comment.

The two sides parted ways last December as YouTube was trying to renew its licensing agreement for Warner Music's videos.

The impasse was a result of Warner's insistence on a deal that was in line with the terms offered to competitors. Another music industry source said the disagreement between YouTube and Warner Music was much more complex than that but declined to elaborate.

Since December, YouTube has struck licensing deals with all the other three top recording companies, Universal Music Group, Sony Music, and EMI. YouTube would likely be glad to once again be able to offer videos from all the majors. Warner artists would likely welcome a return to YouTube and the exposure the Web's No. 1 video site offers.

Weeks after writing off its Imeem investment, Warner Music Group has once again thrown in with the video- and music-focused social network, a source confirmed on Monday.

Only this time, Warner doesn't have to dip into its wallet to acquire an even larger interest in the start-up, according to a story by Peter Kafka at All Things Digital, who broke the news.

What the third largest recording company has agreed to give up for the stake is to rip up the old licensing contract and create a new one that asks for less money each quarter, according to Kafka. My source, who is familiar with the deal, confirmed this.

Warner didn't appear happy last month about having to write down $33 million, most of it from investments made in music site Lala and Imeem.

Warner Music's writedown--$16 million in Imeem and about $11 million in Lala--is a reflection of the company's valuations during the economic downturn, said Edgar Bronfman Jr., Warner Music's CEO at the time.

The top four music labels--Universal Music Group, Sony Music Entertainment, Warner, and EMI--have all been relaxing the financial terms they require from start-ups.

Too bad SpiralFrog and Ruckus couldn't have held out a few more months, perhaps the music services that went bust earlier this year might have negotiated better terms.

Investments made in Web music services Lala, Imeem, and MySpace Music haven't paid off for Warner Music Group, at least not yet.

The third largest of the four biggest recording companies said Thursday it would write down $33 million, most of it from investments made in Lala and Imeem. Edgar Bronfman Jr., Warner Music's CEO, also said after the company issued quarterly earnings report that MySpace Music's performance has so far "disappointed."

Warner Music's write down--$16 million in Imeem and about $11 million in Lala--is a reflection of the company's valuations during the economic downturn, Bronfman said.

Ad supported music services are being hit hard by the ailing economy and the hobbled online ad market. As ad revenues disappear, these companies are trying to charge for some of services, but they haven't gained much traction yet. No one in the sector, not even YouTube, has reported profits. Apple, which sells downloads and doesn't rely on advertising, continues to be the only significant music service making money from the sale of music downloads.

The big question is whether Warner Music's recent moves--the write down, the label's acrimonious departure from YouTube, and decision not to invest more money in Imem--is a reflection of a larger pullback from the tech sector by the music industry.

Imeem, a social-networking site, was teetering on collapse recently, but sources told CNET News that it had received new investment that will keep the site operating for much of the year.

Lala has gone through several business models, but the latest iteration has encouraged some of the music labels with the amount of revenue it has reported generating, music industry sources said several months ago.

MySpace Music is the joint venture founded by News Corp., and the music labels. On Wednesday, CNET reported that some of the labels were dissatisfied with the revenue generated by the 8-month-old music service.

In a conference call with reporters to discuss Warner Music's financial performance, Bronfman said of MySpace: "We continue to hold out a good deal of hope...but, you know, without putting too fine a point on it, (MySpace Music) has disappointed us so far.

"We feel MySpace Music has been slow to create monetization tools," he said, "and to be able to impact in a revenue-generating way, the massive audience that they have been able to attract."

Peter Kafka at All Things Digital was first to report Warner Music's write-down.

Neil Young wants YouTube to cut deals with the four big labels that would compensate artists equally.

(Credit: Neilyoung.com)

Update 9:20 p.m. PT: To include YouTube's response.

Neil Young wants to remind YouTube that Rockin' in the Free World isn't free.

The iconic musician, whose hits include "Harvest Moon," "Cinnamon Girl," and "Rockin' in the Free World," says in a blog post that YouTube doesn't fairly compensate acts represented by Warner Music Group.

Young is referring to the spat that erupted in January between Warner Music and YouTube. The two companies couldn't come to terms on a new licensing agreement and Warner Music's content was pulled from YouTube.

"YouTube has a responsibility to respect the artists it facilitates and resist punishing them to make a business point," Young wrote at his site, Neilyoung.com.

YouTube responded to Young's criticism Monday evening by noting the company "connects music, musicians, and fans. We have deals with all of the other major record labels...It is the record labels' responsibility to represent and pay their artists."

Representatives from Warner Music could not reached for comment.

In the past, YouTube has struck separate licensing agreements with each of the top four record labels. The Google-owned company is amid renegotiating those deals. In 2006, Warner was first among the labels to partner with YouTube. The other labels signed later but negotiated better terms, according to numerous industry sources.

Now, Warner wants what competitors received. Presumably, YouTube isn't offering all of them.

"It is time for industry-wide standards of artist's compensation on the Web," Young wrote. "Warner Bros. artists deserve what artists from other labels are getting."

Corey Vidal is no pirate, but he's been branded one as a result of the licensing spat between Warner Music Group and YouTube.

On YouTube, Vidal posted a humorous video tribute to John Williams, the man who scored the soundtracks for such blockbuster films as Indiana Jones, and Star Wars. In his clip he included some of Williams' music. By now, everybody knows that YouTube removes videos that violate copyright law. What's different about Vidal's work getting pulled is that when he posted it in October, he was permitted to use Warner's music.

Until last month, YouTube had an agreement with Warner Music--one of the four largest recording companies--that allowed video creators to include the label's content in their clips. Last month, talks to renew the deal broke down and that means YouTube and its users no longer have access to Warner's library. For this reason, the case is much different than YouTube's high-profile fight with Viacom or run-of-the-mill piracy that once flourished on the site.

In 2007, Viacom and YouTube failed to come to terms on a licensing deal and Viacom requested that YouTube pull its content. In that case, there was no prior agreement. Most of the people who posted Viacom's films or TV shows to YouTube did so without authorization. In this situation, YouTube fans used Warner Music's songs for two years with the label's blessing. Now, through no fault of their own, the videos that YouTube users made in good faith are being yanked.

"I don't understand who I'm harming," said Frank Stallone, a 41-year-old former DJ who is quick to point out that he is not the less-famous brother of the box office draw. Stallone's video was removed for using 45 seconds from "Forget Me Nots," a 1982 song from Patrice Rushen. "If anything, people are hearing the 45-second tease they haven't heard in a while and they'll want to go out and buy the song," he said.

Warner Music declined to comment, but YouTube had this to say: "While we work with music labels and publishers to keep music on the site, sometimes our negotiations don't pan out," said a spokesman for the company. "In those cases, we try to give people options when they receive a copyright claim. Instead of automatically blocking videos, we give uploaders the choice to dispute the claim (in the case of Fair Use, for example), use our AudioSwap tool to replace the track with one from our library of pre-cleared music, or to replace the video with a new version with no sound."

If nothing else, the situation serves as a warning to those who think that because YouTube obtains rights to music or films one day, the agreements will last forever. That's just not how these deals work.

One of Corey Vidal's fans has reposted the video that was removed at Warner Music's request.

(Credit: YouTube)

That hasn't stopped some YouTube's fans from posting angry videos denouncing the situation at YouTube. Most of the protest videos take aim at Warner and the other three top recording companies. While all four of the big labels are in discussions about renewing licensing agreements, Warner is the only one scuffling publicly with YouTube.

In fact, sources close to the situation say YouTube is close to finalizing a new agreement with one of Warner's chief rivals: Sony Music.

The situation illustrates how Web services and entertainment companies are learning hard lessons as they cover uncharted ground. It's doubtful that Warner Music or YouTube intended to alienate their customers. Presumably Warner Music wants more concessions from YouTube and the Web's No. 1 video site wants to pay less. What they likely didn't consider when they penned their initial contract was what would happen to users if they failed to agree on a new deal.

Vidal, a 22-year-old from the Canadian province of Ontario, is more than happy to help them understand.

Vidal makes his living by creating YouTube videos. He's a member of the company's YouTube Partners program. This allows him to sell some of the advertisements that accompany his clips and pocket the money. He says that his videos see about 3.4 million to 4 million views per month and YouTube is his only source of income. As for how much he makes, Vidal only will say it's enough for him to live comfortably.

Vidal hit the jackpot with his tribute to Williams. YouTube featured it on the site's front door. He says for a time the clip was generating a million views each day and was nominated for a "People's Choice Award" at CBS, parent company of CNET News.

But on January 18, Vidal's cash cow went down.

YouTube sent him a notice that said Warner Music had claimed his video had infringed on the label's copyright. Vidal doesn't dispute that the label owns the rights to the music he used. "I'll share the money I made with them but I just want my video back up."

But he has so many questions about whether his video truly violates copyright law and if so, what part of the video infringes? That's the other problem raised by the quarrel between Warner Music and YouTube. When users are dragged into it, there's few places to get answers. Vidal said he called Warner Music and talked to about half a dozen people in the eight days since his video was removed. He has yet to hear back why exactly the video was pulled down or whether he and the record company can strike a separate deal.

To its credit, Viacom set up a support hot line to help answer questions and address disputes when it began pulling content from YouTube.

That's what Stallone, the former DJ, says he needs. He says he doesn't think using 45 seconds of a song is breaking any law, but he doesn't have anywhere to go to get legal help. Also, he said he was discouraged by some of the language in the takedown notice YouTube sent him. Specifically, this passage: "There are very few valid reasons for disputing a claim," YouTube wrote in the notice. "Submitting an invalid dispute can result in penalties against your account."

Stallone wants to know how he's supposed to determine what an invalid dispute is?

YouTube users should not assume copyright holders are always correct when they accuse someone of a violation, according to Fred von Lohmann, senior attorney for the Electronic Frontier Foundation, a watchdog group that advocates for the rights of Internet users. In the Viacom case, for instance, the company acknowledged erring in a small number of cases.

In another case, a Pennsylvania woman is suing rocker Prince and Universal Music for accusing her of copyright violation for including a brief snippet of Prince's music in a video of her baby. Universal and Prince dropped their copyright claims against the woman and her video has returned to YouTube.

I'm no lawyer, but Stallone's case sounds very similar.