Music Industry Looks to Internet for Revival

A generation after the launch of MTV, major record labels are hoping to revive the music video business online by creating a single digital destination for their artists’ output.

Plans under discussion include: a partnership with Hulu, the online television and film joint venture between News Corp and NBC Universal; the creation of a premium service on YouTube, Google’s video sharing site; or, a standalone venture between some or all of the four largest recorded music groups.

Industry members had hailed deals struck with YouTube last year as a new way of driving profits from the popularity of professional music videos and the soundtracks to amateur efforts on such user generated content sites.

However, some are now questioning whether either side has made much money from arrangements which require YouTube to share advertising revenues and, in many cases, pay a few tenths of a cent to the music company each time a video is streamed, regardless of how much advertising is sold.

Universal Music, the industry leader, has said that it makes “tens of millions of dollars” from YouTube.

Warner Music failed last week to agree a new deal with the site, however, saying it was not being adequately compensated and demanding that the site take down its artists’ videos and amateur content using songs from its publishing arm such as “Happy Birthday To You”.

Representatives of two music companies, who would not be named, said they were in discussions with Hulu, adding that no partnership announcement was imminent but that the site appeared to be the favoured partner. “If it happens at all it will be with Hulu,” one said.

Both added, however, that any such deal to create a standalone music video service would not replace existing deals with YouTube, and that there was interest in supplying content for a potential premium service on YouTube, which has begun to offer high definition videos.

Warner may yet return to YouTube should it agree new terms.

Screen Digest, a media research group, estimated last month that Hulu and YouTube would make about $70m and $100m respectively in US advertising revenues in 2008, but that Hulu would draw level with YouTube next year because advertisers are more comfortable with its professional content.

The industry’s search for new digital income comes amid collapsing compact disc sales, which have not yet been offset by digital revenue growth. Warner, the only quoted music company, reported 39 per cent growth in digital revenues for 2008 to $639m, or 18 per cent of total sales.

EMI, owned by Terra Firma, the private equity group, said full year digital revenues rose 29 per cent to £166m, while Universal, owned by Vivendi, reported 33 per cent growth in digital revenue for the first nine months of its financial year, saying in September it believed digital initiatives could soon return the music industry to growth.