Digital Media

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.

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)

YouTube is trying to make good use of some of the most valuable real estate on its music videos.

A Pearl Jam music video featuring a Visa ad.

(Credit: YouTube)

Anyone clicking on music videos at the site may notice a Visa logo inserted in the click-to-buy overlay that appears at the bottom of the video.

The spot is a choice position for brand advertising and is reflective of YouTube's continued efforts to find new--and hopefully profitable--advertising methods.

YouTube has long said that there won't be one way to turn the Web's largest video site into a profitable venture. Google, YouTube's parent company, has launched numerous ad vehicles, including the sale of keywords and ad overlays.

This is the first time that YouTube has sold ad space in the click-to-buy pop-up, which enables users to purchase a song they see in the music video from iTunes or Amazon.

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."

YouTube has pulled the plug on music videos in Germany as Western Europe starts to look like a hostile environment for Web music services.

A YouTube spokesman confirmed that YouTube is no longer playing music videos belonging to the largest music labels after talks with Germany's biggest royalty collections group, GEMA, broke down.

The conflict is almost identical to YouTube's spat with a royalty group in the United Kingdom, but with one important twist. According to YouTube, GEMA is asking for royalty rates that are 50 times higher than those asked for by PRS, the British organization, and YouTube argues those are even too high.

According to sources close to the negotiations, GEMA is asking for rates far higher than what the group asked for in the original agreement. A GEMA representative could not be reached for comment. But it should be noted that the music industry has often offered favorable financial terms to start-up Web services in initial licensing agreements.

Music executives have told me in recent months that once the companies begin to generate revenue and gain a foothold, they should expect to pay more.

Talks are ongoing but until a deal is worked out, it's unlikely German YouTube fans will be seeing any music clips.

At least in Great Britain, YouTube can make the claim to record labels that the site promotes music sales. The BBC recently reported on a survey that asked more than 1,500 Brits about viewing habits.

About half of the adults who participated said they purchased music after watching a YouTube video by an artist.

Media giant Viacom plans to restrict the embedding of music videos from MTV Networks.

Justin Tormey, a staff member for MTVN developer services, announced in a blog posting Friday that starting next month, the company would no longer make video embeds available through MTV's API:

We've got a number of changes coming on the MTVN Content API. If you're currently using the API for your site or application please take note of the changes and the timeline.

First, we want to thank everyone for their involvement with the API. You've provided valuable feedback and insight through your usage, forum posts and comments.

Going forward we'll no longer be making our embeddable video player directly available to third-party developers. Specifically, starting in early March the nodes, which contain our embedded player, will no longer be published in any returns.

We'll also be updating our returns to include links to our videos on the new MTV Music site. The node will now contain these links.

While developers won't be able to incorporate MTVN's video content, apparently end users will still be able to use an embed code, but there's no word on whether this will change, according to an exchange TechCrunch had with MTVN.

Corporate communications representative Mark Jafar told the site:

All of our online video is and will remain embeddable for end users, just like Hulu. That includes music videos, clips, and full-episode content across MTV.com, VH1.com, ComedyCentral.com, and our entire Web portfolio.

The only thing we're pulling back is fully open access to our music video API, and it's purely an issue of economics. Every music video we stream through the API costs us money due to our deals with the record labels, regardless of whether an ad is attached or not. So, allowing developers to use the open music video API can be a money-losing proposition for us. However, we're absolutely open to extending the music video API to third-party publishers who are willing to work with us to monetize. It's all about striking that right balance between innovation and commerce as we continue to move forward and try new things.

As TechCrunch notes, when other TV media companies are embracing the distributive power of the Internet, it's sad to see a company resisting that opportunity.

Sony Music Entertainment has become the first of the four largest recording companies to renew a music licensing deal with YouTube, according to a published report.

The deal ensures that Sony artists, who include Bruce Springsteen and Beyonce, will remain on the Web's most viewed video site, according to the blog All Things Digital, which broke the news Thursday. Terms of the deal were not disclosed.

A Google spokesman declined to comment and a Sony representative was not immediately available. The initial deals with the labels enabled YouTube to showcase music videos and also allowed site visitors to include the label's songs in their clips.

Last week, sources told CNET News that Sony was near to finalizing an agreement. On Thursday, they said Universal Music Group is near to striking a final deal with YouTube.

If Universal does sign, that would leave only EMI and Warner Music Group.

The latter label may take some time. Warner Music and YouTube's talks broke down last month and Warner's content has been removed from the video site.

Related story: Sony Music woes extend to digital sales

Warner Music Group has been saying since Saturday that it was the one who asked that the label's videos be removed from YouTube after talks to renegotiate its licensing deal with Google's video site stalled.

That's not what happened, say two high-level sources with knowledge of the negotiations.

YouTube began removing videos from its site after Warner came to YouTube with an "11th-hour demand" for better financial terms, according to the sources. All four of the top recording companies are renegotiating their contracts with YouTube for music and music videos.

Managers at the Web's largest video site considered Warner's demand. The label received its answer when YouTube began pulling videos. YouTube also beat Warner to the punch by firing the first public relations volley when it notified the public of the split by posting a note to the company's blog. Ever since, Warner's PR people have been busy trying to get their side of the story out.

Perhaps that's why headlines have resurfaced about how all four of the top labels are interested in building their own YouTube competitor, and how YouTube isn't driving much money to the record companies, and how Warner's departure may be a bad signal for YouTube.

None of that is accurate. Here's what my music industry sources said: the labels have not made any serious plans to build their own music-video site, at least not those that have tallied big returns from video streaming and YouTube. I reported earlier this year that Universal had considered a video site, but the plan hasn't gone anywhere since.

As for the kind of revenue YouTube is delivering to the labels, Silicon Alley Insider reported that Universal Music Group is making as little as $25,000 a month on ad revenue fees. That is flat out wrong, my sources said.

An executive with Universal Music Group told me on the record last week that YouTube has made the No. 1 music company "tens of millions" of dollars this year. I reported, as did Peter Kafka at All Things Digital, that Universal is on track to book nearly $100 million in video-streaming revenue this year. Some of that money comes from other services, but the source said 80 percent is from YouTube.

By all indications, Warner overplayed its hand. YouTube can afford to let Warner walk. The vast majority of music listened to at YouTube comes from the two largest recording companies: Universal and Sony BMG. Universal, the label that represents U2, Kanye West, and The Rolling Stones, is the most-viewed YouTube channel all time with more than 3 billion views. Sony BMG is a distant second with 491 million views.

Warner isn't even in the top 10. The record company's 278 million views is good enough only for 11th place.

So it appears that some labels are happy with YouTube money and Warner is not. According to my sources, some of Warner's problems with the Web's No. 1 video site are of its own making.

YouTube's traffic machine may finally be turning into a cash machine.

For the first time, there are signs that YouTube is driving significant revenue for itself and some of the video site's partners. In an interview with CNET News this week, Rio Caraeff, executive vice president of Universal Music Group's eLabs, said the largest of the top recording companies is bringing in "tens of millions of dollars" from YouTube.

"(YouTube) is not like radio, where it's just promotional," said Caraeff, who heads up Universal's digital group. "It's a revenue stream, a commercial business. It's growing tremendously. It's up almost 80 percent for us year-over-year in the U.S. in terms of our revenue from this category."

Universal, the home of such acts as Akon, the Black Eyed Peas, and U2, has a two-part licensing deal with YouTube, as do the other major labels. Under the deal, the recording companies post music videos on the site and share advertising revenue with YouTube. The two companies also share ad revenue for music posted to the site by users.

"YouTube is the ideal place for labels to promote music and for fans to discover new artists and old favorites," said Chris Maxcy, YouTube's partner development director. "We're committed to being a good partner to music labels and are pleased they're having success on the site."

Caraeff declined to give specifics on Universal's deal with YouTube, but a music industry source close to the label said Universal will likely book nearly $100 million in revenue from video streaming this year. That figure includes video-streaming money from all of the company's partners, such as iMeem, MTV, and MySpace. The source said, however, that most of the cash comes from YouTube.

Universal is starting to see some significant cash from its deal with the video-sharing site for two reasons: first, YouTube's recent efforts to find a business model are working. The other is that music, by far the strongest single segment on YouTube, has always been a major draw.

"It's really coming to fruition I think in part due to YouTube's recent focus on monetization," Caraeff said, "and really trying to drive revenue around premium content more so than they have in the history of their short existence. They have finally turned their spotlight on 'How do we turn this into a business?' And that's benefiting the entire ecosystem of content owners as well."

This year, Google CEO Eric Schmidt pledged to wring more profits out of YouTube. Google paid $1.65 billion for the video-sharing powerhouse in October 2006. In the two years since, YouTube appeared to take tentative steps toward generating revenue while trying to avoid alienating users with too many ads.

This year, the company has become more aggressive. Among the long list of changes was last month's announcement that YouTube would sell keyword search terms. To make the site more attractive to advertisers as well as video producers, YouTube has improved the quality of video and rolled out a test version of a wide-screen player. More importantly, YouTube has improved the quality of its filtering technology so unauthorized copies of television shows and films can be removed quickly by copyright owners.

But the big question is whether the growth in music-video revenue says more about the music industry than it does about YouTube.

Universal's YouTube channel is overwhelmingly the largest on the video site. The record label is the all-time most viewed channel, with nearly 3 billion views. Second-place Sony BMG, the second largest recording company, trails by more than 2 billion views with 485 million total views.

Of the top 10 channels on YouTube, 7 are music related. They include channels from Warner Bros. Records, Soulja Boy, and Disney's Hollywood Records.

Only a few years ago, the record labels saw music videos as promotional vehicles only. Some argue one of the music industry's biggest mistakes was giving videos away to MTV nearly 30 years ago. Doug Morris, Universal's CEO, has led the industry to set up videos as a revenue stream. Since 2005, Universal has gone from making zero dollars on music videos to nearly $100 million.

"Certainly, in the last year the rise of free to consumer ad-supported video has become a very significant part of our business coming from a variety of areas," Caraeff said. "YouTube is driving a very large quantity of that... We have a great relationship with YouTube, and the future for us will be more than with YouTube than we're doing today.

"We're working with them on a variety of new concepts and new businesses to take the groundwork we've done in the last year and half and do a lot more with it," he added. "I wouldn't expect to see us just do business with YouTube like we used to do."