An offline YouTube ad. YouTube has had difficulty raising ad revenues.

An offline YouTube ad. YouTube has had difficulty raising ad revenue.

YouTube and the music industry might have finally found a way to work together. Google, YouTube’s owner, and Universal Music Group (UMG) announced the upcoming launch of their new site, VEVO. YouTube’s Chris Maxcy describes VEVO as “a music and video entertainment hub that will feature UMG’s premium video content.” Viewers will be able to watch the videos from UMG’s catalog on and through a VEVO channel on YouTube. VEVO will be owned by UMG, while YouTube will provide the technology to power the site, and both companies will share advertising revenue.

Despite its popularity, YouTube has had problems raising advertising revenue. It has 100 million viewers in the United States; yet its low cost per thousand page views (CPM) reflects its relatively low advertising rate. Some companies have been reluctant to advertise on the site in part because of the prevalence of amateur videos. These companies feel that their spots can easily be lost amidst the myriad of videos. Moreover, a copyright infringement suit currently facing YouTube, and the disagreements over licensing with the other big music companies, have arguably deterred otherwise willing advertisers.

In one such disagreement, Warner Music withdrew its consent for its content to be on YouTube. Consequently, its videos were blocked from YouTube. Similarly, YouTube recently had to block all music videos from its German and UK sites. VEVO, therefore, is likely a welcomed opportunity to resume talks with the other major labels, and to restructure itself so as to gain more from advertising revenue. In fact, UMG is said to be trying to persuade Warner, Sony, and EMI to join the partnership.

Regardless of whether the other music companies join, one of the most significant implications of this partnership is its attempt at improving the relationship between the music and digital industries. The music industry has suffered financial losses, due in part to the availability of music online, some of which is pirated. This partnership signals a willingness to work with, rather than against, the consumers and engines that drive the digital age. Moreover, it establishes a new perspective with which to view licensing agreements, a consistent bone of contention between YouTube and the music companies. If it is successful in bringing in the expected revenue through advertising, YouTube might be in a better position to pay the higher licensing rates requested by the music companies. Artists, in turn, will likely receive appropriate royalty compensation. Although the project is not without its share of problems, its success would provide a favorable outcome to all parties.

C. Green

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