NEW YORK (AdAge.com) –- Warner Music Group is calling on a startup to help execute the lynchpin in its new approach the web. The company struck a deal with Outrigger Media, a small group spun out of video site Veoh, to package artists such as Madonna, Ashley Tisdale and Green Day for advertisers.
Outrigger, headed by former Veoh sales chief and Dow Jones executive Mike Henry, will sell advertising on Warner videos across the web whether on YouTube or other distributors, such as social networks, blogs or the artist's own sites. Rather than negotiate licenses with distributors such as YouTube or AOL, Warner is seeking revenue-sharing deals in the hope that brands embrace music videos as a high-end advertising vehicle.
Earlier this fall Warner reached a deal with YouTube that hews to its new principles: instead of collecting a royalty each time a video is played, Warner, through Outrigger, will sell advertising (largely pre-roll ads) against music videos and share revenue with the world's largest video site.
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"In the past we've had some experience with developing ad sales as an internal capability, but we felt like we really needed to have a group of dedicated pros who know the space and are actively engaged in developing the video component of the online advertising market," said Michael Nash, Warner's exec VP of digital strategy.
The deal is the engine that is expected to power Warner's new approach to the web, which will include distribution deals on similar terms with big portals and distributors from AOL to Yahoo to MySpace to MTV. Even Vevo, the digital joint venture between Universal Music Group and Sony Music Entertainment, is a possibility and the subject of ongoing talks. Warner's core requirement is that the distributor allows Outrigger to monetize the videos, and that the videos link back to artist sites.
The reversal in terms should appeal to web distributors. Before, a deal to host Warner video was an expensive proposition for them because they had to pay license fees; now they'll collect a percentage of ad revenue commensurate with the traffic they deliver. It also means viewers will be watching a lot more pre-roll advertisements before music videos, though Mr. Henry said they will limit the ads depending on the number already viewed.
Unlike Universal and Sony's Vevo joint venture, Warner isn't interested in building a destination but wants the artists to be the center of the strategy, wherever they are on the web. "It starts with the artist and the unique audience that the artist attracts," Mr. Henry said. "We are trying to align the artist with the DNA of a brand; what is not the focus is a single site or platform."
The new strategy is the result of a retrenchment at the label that began last year when Warner began to rethink the way it distributes music videos on the web. It pulled its videos, and then its content, off YouTube; the two could not reach a new deal in December.
As an independent company spun off from AOL Time Warner five years ago, Warner Music Group was aggressive on the web early on. It was one of the first labels to strike a deal with YouTube and led the way in licensing other subscription and ad-supported music services. "The perspective initially was, 'Wow the internet gives us vast distribution. Let's license a whole bunch of partners, they will sell it and we will collect a lot of little checks and some big checks," Mr. Nash said.
But the actual revenue from those businesses proved disappointing. Earlier this year Edgar Bronfman, CEO of Warner Music Group, cut off further digital investments and wrote off the value of investments the label had made in a number of startups.
So call it version 2.0 of Warner's digital strategy. This time, Mr. Nash said Warner is going for quality over quantity when it comes to distribution, an approach more akin to Hulu and more in line with providing a premium environment for advertisers.
Outrigger, with a staff of 14, sells ads for Next New Networks, which also has a distribution deal with YouTube, and for what's left of Veoh, the online video company backed by former Disney chief Michael Eisner, which retrenched as a technology company earlier this year. Mr. Henry sees selling not only artists but the audiences they attract. Online video is the core, but it also includes monetizing social media, blogs and the artists' own sites.
"Music videos have gotten the short end of the stick for a long time they haven't been sold as the incredibly high quality content that they are," Mr. Henry said. "People don't watch TV clips over and over and over again. People don't care what actors in 'The Office' do or drink or wear, but they do care about what the artists do."