YouTube and Universal teaming up on new music video site

Sources are telling the WSJ and CNET that YouTube and Universal Music Group (UMG) are in late stage talks to launch a music video site tentatively called Vevo. The plan is to boost music video ad revenues by hosting them in a more brand-friendly environment than YouTube currently provides; YouTube would also provide tech and ad sales support, helping to get UMG’s content distributed on other sites as well. YouTube’s official statement –  “We are always working with our partners to find creative ways to connect music, musicians and fans” – doesn’t shed any light on how close the two parties are to an agreement (or if there even is one).

While YouTube has struggled to generate meaningful revenues from its swatch of user-generated content, music videos have been a cash cow—and the labels have been pushing for a bigger cut in recent weeks of negotiations. Sony BMG (NYSE: SNE) was the first major to re-up its licensing agreement with YouTube, but talks with Warner Music Group (WMG) ended with WMG taking down all of its content; this partnership could be one way for YouTube to appease UMG and make more money for itself in the process.

It could also be one of the most amicable pairings, as CNET notes that UMG’s YouTube channel is the largest on the site, garnering over 3.5m views, and UMG reportedly had plans to launch a “Hulu-like” music video site on its own last year.

Staci adds: This may sound imminent but I gather that even if a deal were to come tomorrow – and no one is telling me that’s the case – it’s still at such an early stage that much of the detail has yet to be determined and any site (micro or standalone) would be months away.

Despite the often oblique statements, YouTube has been pretty clear about wanting deals that keep a label’s music on the site legally but with economics that swing both ways.  That would suggest a deal that gives YouTube the UMG licensing it needs across the main site and includes revenue sharing for advertising, e-commerce and any other revenue streams, in addition to any new setup. It’s hard to imagine a site completely outside of YouTube’s current ecosystem, especially with YouTube powering the back end but there are a lot of ways it could be accomplished.

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