Warner Music Group — now banned from YouTube following failed licensing negotiations — isn’t the only major record label tired of doing business with Google’s video-sharing site.
A source familiar with the negotiations tells us that Warner and the three other majors — Sony BMG, EMI, and Universal Music Group — all think they could do better creating their own music video Web destinations and are in early talks about forming a joint venture similar in concept to Hulu, the increasingly popular TV-on-the-Web joint venture from News Corp and NBC Unviersal.
The problem with the YouTube deals is that while the labels are making money allowing YouTube to host videos — a Universal Music Group exec recently put the annual figure in the “tens of millions” — almost all the money comes from a pay-per-play licensing fee YouTube agreed to back in 2006, right before it sold to Google.
For example, our source has heard that Universal Music Group, the most popular label on YouTube, only earns about $25,000 per month from YouTube ad revenues. The rest of whatever UMG makes comes from a simple pay-per-play licence fee.
The reason the ad revenues are so low is that it’s hard for Google to sell ads against user-produced YouTube videos that feature copyrighted music (think two girls lip-syncing to Beyonce). Under the current deal, YouTube still has to pay a royalty for these.
Suddenly in penny-pinching mode — due to a new CFO, a rough economy and low Wall Street expectations — Google is tired of paying for content that doesn’t make it money. Google wants the labels to sign new deals heavy with revenue-sharing and light on licensing fees.
The current deals begin to expire early next year.
The labels agree that their content’s future on the Web is ad-supported, but the $25,000 checks have them convinced they could do a better job selling sponsorships, pushing concert tickets, and music sales on their own site.
A joint venture is just one possiblity each label is considering. Our source said there have been many brain-storming sessions. If we were to contribute to those, we’d say that if the labels do create a joint venture, we think it’ll probably be popular like Hulu, but frought with similar problems. Namely, it’ll be stuck with hosting bills and not allowed to keep most its ad revenue, which we’re not sure there will be that much of, if YouTube’s $25,000 checks are any indication.
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