Fight's On Between Labels And Websites

And In This Corner...

The removal of WARNER MUSIC GROUP's videos from YOUTUBE (NET NEWS 12/23) over the weekend highlights the growing tension between music labels and websites over what is becoming an important source of revenue for the recorded-music industry: advertising and licensing fees from music videos, the foundation that built MTV but which has now largely migrated to the Internet. The LOS ANGELES TIMES writes the impasse comes at a time when all four major labels -- WARNER, UNIVERSAL MUSIC GROUP, SONY BMG MUSIC ENTERTAINMENT and EMI MUSIC -- are renegotiating their licensing deals with YOUTUBE, the largest video site.

Some labels are clinging to a model that makes no sense economically. We'll be sad to see that content go, if it gets to the point where we can't agree on terms.

YOUTUBE and social networks such as LAST.FM pay for the rights to stream music videos. Typical licensing agreements pay either a minimum fee based on the number of times a video is viewed or, if the sum is greater, a share of the ad revenue, helping to make music videos a small but fast-growing source of revenue for the labels. One label executive estimates that music videos will generate about $300 million for the industry this year.

Record labels are eager to explore ancillary revenue to help offset free-falling CD sales. This year's album sales are down 45% from 2000. A recent FORRESTER RESEARCH report projects that disc sales will continue to decline by an annual rate of about 9% over the next five years, as retailers reduce the shelf space allotted to CDs and music fans shift their purchases online. 

360 Deals

As a result, music executives are increasingly pressing for what the industry calls 360 deals, in which the labels grab a share of revenue once reserved for the artist, such as concert ticket sales and proceeds from the sale of T-shirts and other merchandise.

Music videos are just one of myriad ways in which the music companies slice and dice a music single, from 99-cent downloads on iTunes to mobile-phone ring tones.

"Video is not the largest category, but it's a significant category, to the tune of 5% or 10% of the total," said SONY BMG MUSIC ENTERTAINMENT Pres. /Global Digital Business THOMAS HESSE. "It's a significant and growing number."

"The irony is, back in the day when the production budgets were more in the seven-figure-plus range, we weren't monetizing them at all," said ZOMBA LABEL GROUP VP/Marketing And Digital Media JEFF DODES. "It was a time when the media landscape wasn't as fractured as it is now."

"We want to offer the most complete array of music possible, but we need to do that in a way that makes economic sense," said YOUTUBE Dir./Content Partnerships CHRIS MAXCY. "Some labels are clinging to a model that makes no sense economically. We'll be sad to see that content go, if it gets to the point where we can't agree on terms."

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