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Vevo Aims to Help Music Companies Cash in on Video

Nearly three decades after MTV's launch, it appears that music videos still matter. In the old days record labels would provide videos for free, viewing them as just a part of their promotional arsenal to sell CDs. But with music sales reeling and music companies desperate to create new businesses, videos are being recast as potential revenue generators, beyond the sales they generate as downloads on iTunes (AAPL). Still, the industry's four big music companies disagree as to what might constitute the best advertising-supported model for videos. On Dec. 8, in one of the biggest music industry collaborations of recent years, an online music video service called Vevo will be unveiled. It will essentially be the music version of Hulu, the popular TV-shows-and-movies streaming site owned by three broadcast networks. New York-based Vevo is a partnership launched by Universal Music Group and Sony Music Entertainment. EMI Group announced Monday, Dec. 7, that it is taking a stake as well. Google's (GOOG) YouTube is also a partner. Abu Dhabi Media is an investor. The service, from which the partners will share advertising revenues, will make its debut with 15,000 videos. The Internet is awash with music videos, both polished and camera-phone raw, at such sites as YouTube, Yahoo! Music (YHOO), AOL Music, MySpace (NWS), Imeem, and MTV's Web sites. Vevo's goal is to become a central hub for videos of a premium quality "that enhance the music experience for fans," says Rio Caraeff, Vevo's CEO and a former top digital executive at Universal. Video streams of Sony and Universal artists alone top a billion hits a month on YouTube, adds Caraeff. All of that traffic will shift to Vevo. Warner: A bigger stake in its artistsHistory may be against Vevo. Industry collaborations are notoriously short-lived. Remember the subscription services pressplay and MusicNet, both music company partnerships that fizzled in a few years? Other ballyhooed, industry-backed digital initiatives such as and Jimmy and Doug's Farm Club similarly failed. That track record may be one reason why Warner Music Group (WMG) has so far balked at joining Vevo. Another may be that CEO Edgar Bronfman Jr. believes Vevo's portal-like approach takes away from the only brands that matter in music: the artists. That's why any video that Warner syndicates to other Web sites drives fans to the artists' own sites. This makes business sense for Warner because half its talent roster is now signed to so-called 360 deals in which Warner owns a greater share of the artists' rights. Warner stands to gain from any concert tickets or merchandise sold on these artists' Web sites. Moreover, Warner has hired online video marketing company Outrigger to sell advertising around its videos, so Warner controls the inventory next to its videos even when they are syndicated out to a service such as AOL Music. Advertisers are playing a deeper role in the videos, says Outrigger CEO Mike Henry. Nokia (NOK), for example, sponsored a video from alternative dance band Cobra Starship: A Nokia phone appears in the video. "Vevo is focused on a single destination," says Henry. "We're focused on the artist." Vevo-branded videos on MTV?One advantage the Vevo model will offer, however, is that it can draw large audiences on a scale attractive to top-brand advertisers, says Vevo CEO Caraeff. Even before the launch, 20 advertisers have signed on, including AT&T (T), say Caraeff. Vevo also aims to give advertisers the opportunity to partake in interactive features with fans, such as creating branded playlists with fans. And by offering a separate channel on YouTube—with its own dedicated advertising sales staff—Vevo can offer a safe environment to lure advertisers that might be skittish about YouTube's racier material, Caraeff says. Fans can also access Vevo directly at its own Web site. And much the way Hulu syndicates its programming, Vevo will license video to other sites, branded on screen as Vevo video. Caraeff imagines a day when Vevo would negotiate to sell its videos to MTV and Vevo's brand would appear on the TV screen as the video plays. But what happens to all those unlicensed music videos on YouTube, from old footage of Frank Zappa shows to iPhone videos of a recent Kings of Leon concert? Will they be taken down so as not to compete with Vevo's videos, even though music is the most popular video category on YouTube? Apparently not. Caraeff says he's not worried that people might prefer to watch lesser-quality video. "We are all about what is best for the fan who loves music," he says. "If we provide a better experience for fans, they will come to our service. That's what will guide this company."
Lowry is a senior writer for BusinessWeek in New York.

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