Universal Music CEO Courts AT&T, McDonald’s for Vevo Web Site
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By Kristen Schweizer and Adam Satariano
Dec. 7 (Bloomberg) -- Universal Music Group Chief Doug Morris, head of the world’s biggest record label, is playing ad- man to lure marketers to the Vevo music-video Web site in the latest bid to rebuild the industry.
Morris, 71, has split his time the last few months courting advertisers for Vevo, he said in a Dec. 2 interview. The site will be introduced tomorrow at an event in New York where Mariah Carey, Rihanna and Lady Gaga are scheduled to attend. AT&T Inc., McDonalds Corp. and MasterCard Inc. have agreed to advertise, according to New York-based Vevo.
Vevo, powered by Google Inc.’s YouTube and featuring music videos, concert footage, interviews and original content, allows record labels to attract premium-prices for ads while controlling how music is viewed and distributed online, Morris said. The effort to reverse the industry’s decline may be Morris’s final salvo as he prepares to hand over the reins at Universal to international music head Lucian Grainge.
“The music business has been taken advantage of for years,” said Morris. “This is our opportunity with Vevo to take back control of our product.”
Vevo is co-owned by Vivendi SA’s Universal Music, Sony Corp. and the Abu Dhabi Media Co. Terra Firma Partners Ltd.’s London-based EMI Group Ltd., the label of Norah Jones and Coldplay, is near a licensing deal to provide material to the site, a person familiar with the plans said last week. Negotiations to add material from Warner Music Group Corp. are ongoing, people familiar with the matter said.
Record companies are trying to capture the growth in online ads and offset an almost 50 percent decline in U.S. album sales from 2000 to 2008, as measured by Nielsen SoundScan. Global ad spending for online videos is projected to more than triple to $7.6 billion by 2012, according to New York-based researcher eMarketer.
YouTube
YouTube, which generates more than 1 billion views per day, is projected by Credit Suisse to lose $470 million in 2009. The company sees Vevo as a way to expand beyond advertising by licensing its software, said Chris Maxcy, director of content partnerships at YouTube.
“We do think it’s going to be a good business opportunity,” Maxcy said.
Universal Music’s revenue fell 5.2 percent to $2.78 billion in the 9 months through September, even as digital sales surged 21 percent. At Edgar Bronfman Jr.’s publicly traded Warner Music, digital sales grew 10 percent for the year ended in September while overall revenue fell 9 percent.
New York-based Warner Music rose 17 cents to $5.27 on Dec. 4 in New York Stock Exchange composite trading. The shares surpassed $30 in 2006. Vivendi gained 49 cents to 20.50 euros in Paris and has lost 12 percent this year. Sony added 35 yen to 2,510 yen in Tokyo.
‘Elephants Mating’
Vevo’s owners are betting the site will command premium ad rates because of its professional content compared with YouTube’s often-grainy user-generated material, Morris said. Universal Music and Sony Music videos have been collectively streamed about 15 billion times on YouTube, according to Vevo.
“I don’t think most advertisers want their product next to a video of elephants mating,” Morris said.
User-generated or pirated videos make up about 90 percent of streams on YouTube, said David Hallerman, a senior analyst at eMarketer.
“There’s very little targeting that goes on,” he said. “Even though it is such high-quality content.”
Record companies have often battled with YouTube as they sought to increase payments. Universal receives “a percentage of a penny” each time a clip is viewed, Morris said.
Last year, Warner Music removed its videos from YouTube after negotiations over royalties failed. In March, YouTube in the U.K. and Germany blocked access to premium videos by the four big labels after talks with collection societies collapsed.
Profit Goal
It isn’t clear when Vevo will become profitable, said the site’s CEO, Rio Caraeff. Vevo will focus on attracting a large audience and will eventually expand beyond advertisements as a revenue source, he said.
Vevo’s owners want the site to become a syndication platform for music videos across the Web, Caraeff said. That would mean striking new agreements with Yahoo! Inc. and AOL Inc. when existing licensing deals expire, he said.
False Starts
Previous online efforts by the record labels have struggled. Last year, News Corp. introduced MySpace Music, a Web site where the four labels sought to sell as, sponsorships, concert tickets and merchandise. The venture “disappointed” Warner Music CEO Bronfman and had been slow to “create monetization tools,” he said this year.
Warner Music has a separate plan to make money from online ads, and has hired New York-based Outrigger Media as exclusive sales agent to control the way ads are sold next to videos and artist content online. Warner reached a revenue- sharing agreement in September to sell advertisements alongside its videos on YouTube.
“We think the online video category is strategically significant and there’s a premium ad business opportunity around video that’s different than audio,” said Michael Nash, a Warner executive vice president.
Universal Music and Sony made earlier stabs at digital initiatives. PressPlay, a subscription download service, was eventually sold, and Total Music shut down this year.
Vevo has potential because it has a built-in audience through YouTube, and will be able to generate revenue from other products, said Morris.
Ticketmaster Entertainment Inc. CEO Irving Azoff said he and Morris are discussing ways to offer tickets, merchandise and other items to Vevo. “It’s a great opportunity,” Azoff said.
Azoff also heads West Hollywood, California-based Ticketmaster’s Front Line Management, whose clients include the Eagles, Christina Aguilera and Jimmy Buffett.
“I’ve known Doug Morris for 30 years, he’s a very determined man, and I’ve never heard him more excited about anything he’s done in his career than this,” Azoff said.
To contact the reporters on this story: Kristen Schweizer in Los Angeles at Kschweizer1@bloomberg.netAdam Satariano in San Francisco at asatariano1@bloomberg.net
Last Updated: December 7, 2009 00:23 EST
