Music industry takes aim at YouTube

Warner Music orders removal of videos

As much as the music biz needs the Internet to spread the word about bands and recordings, there remains a tension between the two that suggests they have yet to create a level playing field for doing business together.

When Warner Music Group ordered YouTube to remove videos from its artists this past weekend, it served as a reminder that copyright holders not only want payment for their wares but control over promotional activities as well. Since day one, the major labels have struggled with sites that promote fan activity. And the difference in attitudes regarding content and compensation certainly drove a wedge between the music and online sides when Warner Music and AOL were still under the same Time Warner umbrella.

Warner Music Group has been a leader in getting consumers to buy its music online. This year, one of its labels, Atlantic, declared itself to be the first major imprint to be generating higher revenues from digital downloads than from physical CDs. And WMG was the first major to strike a deal with YouTube. That agreement pre-dated the purchase of the video site by Google.

After months of negotiations, the talks broke down last week and Warner informed YouTube that its videos need to be removed from the site. (Translation: T.I., Metallica, Madonna and Kid Rock have to be removed now, and maybe we’ll get around to pulling down those who don’t sell as much — k.d. lang and Pat Metheny for example. )

YouTube is still in talks with the other majors as all of the big four signed deals more than two years ago to receive a payment each time one of their videos is streamed. The labels also share in the advertising revenue generated by the site.

That’s part of what has sent WMG packing. Revenue from YouTube amounts to less than 1% of the music company’s total digital revenue of $639 million in fiscal 2008. Websites airing video receive between half a cent and a little less than a penny for each video stream, and, since the YouTube deal was struck, WMG has set up similar deals with AOL, Yahoo, MySpace and imeem. It’s also in talks with Hulu.

YouTube, according to WMG insiders, drives traffic but offers no editorial and no recommendations — key components of other music websites.

Naturally, YouTube and Google are able to point to numbers that WMG would not receive without fans posting songs and videos. YouTube is the world’s most heavily trafficked Internet vid site.

But the lesson of history keeps the relationship tenuous between music-oriented websites and the music industry. Think of MTV.

The cabler was built on the backs of programming that the labels financed and ostensibly gave away for free. Labels did receive some residual income from MTV, but it was minimal compared to the amount a content provider would receive. Videos were marketing tools, and with the invention of the DVD, there was finally an afterlife for the content that gave it a monetary value.

“We are working actively to find a resolution with YouTube that would enable the return of our artists’ content to the site,” Warner Music said in its statement. “Until then, we simply cannot accept terms that fail to appropriately and fairly compensate recording artists, songwriters, labels and publishers for the value they provide.”

The goal is to avoid repeating what the music industry now views as the mistake of the MTV deals. The websites, meanwhile, will aggressively do whatever they need to do to secure content they can offer for free. It’s a battle that may never end.

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