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Warner Music Retreats From YouTube

The online video landscape is awash with grainy homemade fare, viral marketing clips, and a growing number of full-length television shows and movies. But music videos are still the number one attraction, accounting for 7 of the top 10 most popular web videos of 2008, according to analytics firm TubeMogul. For the most part, music videos are professionally produced and licensed for viewing on sites like Google-owned YouTube by the music labels, which share ad revenue or collect a fee per stream.

On Dec. 20, talks between Warner Music Group and YouTube to renew their deal hit an impasse ?and one by one, the videos of established Warner artists like Madonna and hot young acts like T.I. began disappearing from the site. It remains unclear which party is taking down the videos, but many popular clips from known Warner artists can still be found. Also affected by the split are user-generated videos containing Warner content.

Based on a statement Warner provided to Reuters, it appears that the music label was demanding a larger chunk of revenue from video streams than the site was willing to accept:

"We simply cannot accept terms that fail to appropriately and fairly compensate recording artists, songwriters, labels and publishers for the value they provide.”

With this move, Warner is abandoning online video’s most potent power – as a promotional vehicle for album sales and merchandise. T.I.’s music video for “Whatever You Like” was the 8th most popular online video of the year with some 38 million views (it ranked just behind Barack Obama’s Philadelphia “race speech”), and no doubt spurred sales of his album “Paper Trail,” which debuted at no. 1 on Billboard charts and was certified Platinum by the RIAA.

Album sales are dismal, but they are still the bread and butter of the industry. Over the past four years, Warner’s album sales were up 5% during the first 10 months of 2008 – compared with double-digit declines from all three of its major rivals over the same period. When he was interviewed for a BusinessWeek article which ran Nov. 20, CEO Edgar Bronfman Jr. attributed this success in part to his strategy of slimming down the label’s roster of artists, focusing on acquiring and developing new talent. Now he is threatening to stifle the exposure of these artists by shutting down one of the most popular venues for music buyers looking to discover new music.

Maybe Bronfman thinks there are substantial profits to be made by playing hardball with Google, and attempting to up the terms of Warner’s revenue-sharing deal. And there might be some gold in the hills that he has yet to find (an executive from rival Universal recently told CNET that his company is making “tens of millions of dollars” from YouTube). But the problem is, Google is sitting in the position of power – from the search company’s perspective, losing one out of three of the big labels does not change YouTube’s positioning is the premier destination for online video.

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