NEW YORK (AdAge.com) -- Google's YouTube and Universal Music Group, the world's largest record label, are going into business together in a deal they hope will forge a future for ad-supported music.
The two announced a licensing and advertising-revenue-sharing agreement today that covers the use of UMG music on YouTube around the world, as well as a joint venture to create a new video site, Vevo, a concept that bears more than a small resemblance to the NBC-News Corp. joint venture meant to create a business for ad-supported TV online, Hulu.
Vevo, which will be launched later this year, initially will have just UMG music, but CEO Doug Morris said he is in talks with Sony Music Entertainment, EMI and Warner Music Group about joining the venture. Warner pulled its content off YouTube in December after an impasse in talks to renew a licensing deal.
The new service changes the old model under which YouTube paid the labels a fraction of a penny when a song was played, either as an official video or a soundtrack for a user-generated video. The economics of the new deal are based on sharing ad revenue.
Like Hulu, Vevo will have its own, separate site and customized, branded player, which can be embedded on other sites, as well as carry pre-roll video ads. YouTube will provide the technology and infrastructure for Vevo, its first outside site. Google CEO Eric Schmidt said he'd like to see YouTube launch other sites, perhaps for other types of content.
UMG's artists and channels have accumulated 6.2 billion views on YouTube since its inception, according to web-video-analytics company TubeMogul. Sony Music Entertainment has accrued 4.8 billion views, and Warner Music Group has just over 1 billion views. Typically music videos account for between 40% and 60% of the top 100 videos at any given time. The deal keeps UMG tracks on YouTube, a vital source of advertiser-friendly content.
Creating a Hulu for music isn't a new idea. Viacom is giving it a try with MTV Music. The next question for Vevo is whether the other labels now follow suit. CBS, ABC and Viacom stood on the sidelines two years ago when NBC and Fox created Hulu; now Viacom is licensing content to the service, and ABC is in talks to join up. The labels desperately need to develop new revenue streams besides the sale of physical CDs.