Universal Music will book nearly $100 million of revenue from streaming music videos online this year, with most of that revenue coming from YouTube.
Universal Music Group EVP Rio Caraeff told CNET the company brings in “tens of millions of dollars” from YouTube. Careeff says the business grew 80% in the last year and that YouTube has “finally turned their spotlight on ‘How do we turn this into a business?”
This is good news for the web video business, even though it’s still small potatoes relative to other forms of online advertising. It’s also rare positive news for the music industry.
But what does it mean for Google? Not much. Especially relative to Google’s $20 billion of text-based ad revenue.
Using the UMG figures, we estimated how much YouTube brings in from UMG and other music labels. Call it about $50 million a year, before costs. And that’s globally, for the single most popular and monetizable form of web video there is.
How do we get there?
Let’s say YouTube generates 80% of UMG’s $100 million in digital revenues, or $80 million. Let’s say that $80 million represents UMG’s share of a larger gross revenue number, of which UMG keeps about 70% and Google keeps around 30%. This suggests that YouTube probably generated about $30 million of ad revenue from serving Universal Music Group videos this year.
That’s not much. Assuming the 3 other majors together contribute almost as much revenue as UMG–which they probably don’t because the second-most-popular channel on YouTube, Sony BMG’s, sees about 16% as much traffic as UMG’s–we figure Google will earn around $50-$75 million this year from digital music streaming.
And that’s revenue. Google is bearing all of the costs, including streaming. If the revenue number keeps increasing 80% a year, YouTube may someday have a real business on its hands. But it doesn’t yet.
Update: All Things D’s Peter Kafka reports that it’s even worse than we thought. “YouTube’s current arrangement with the labels is a money-losing one,” He writes:
Here’s how the current deals work: Whenever someone clicks on an official video that’s been sanctioned by the labels, YouTube has to pay the labels the either a per-stream fee, or a share of ad revenue associated with the clip, whichever is greater. Since YouTube is just beginning to get serious about selling ads next to its content, it’s usually paying the per-stream fee, which industry executives peg at about half a penny per clip.