Vevo: music empire strikes back

Feature A new video provider, owned by all bar one of the major music firms, is turning the tables on MTV.

Doug Morris, L.A. Reid, and Rihanna at The launch of VEVO The Premiere Destination for Premium Music Videos.

For years, MTV snubbed its nose at record companies, refusing to share the profits it gleaned from music videos of their artists. Now a new video provider is turning the tables as it is owned by all bar one of the major music firms, and the last may yet sign up. If any of the insomniacs who caught MTV's inaugural broadcast a minute after midnight on August 1, 1981, doubted what the cable channel was up to, they only had to wait for the chorus of the first song for the answer: "Video killed the radio star," sang those one-hit wonders, The Buggles.

A bit like MTV itself, it was a sugary pop hook and a ruthless business plan rolled into one. From the beginning, MTV set out to fundamentally change media. It did not invent the music video but it figured out how to make money from a medium that record companies had previous written off as a promotional expense. In the process, it changed the way stars were made and records were sold. The fans loved it but the record companies were less convinced. After all, this upstart station was making a healthy profit from selling advertising against their promotional material, but refusing to share this revenue stream.

Even more distressingly from the labels' point of view, MTV at its height was the very gatekeeper of cool, giving a single company vast power over the sales of an entire industry. This week, 28 years and one internet revolution later, the labels may finally have had their revenge. At a star-studded launch party in downtown Manhattan on Tuesday night, a venture was launched that, like the original MTV, aims to profit from advertising sold alongside music videos. This time around, the labels own it.

Vevo, a partnership between Universal Music Group, Sony Music Entertainment and the Abu Dhabi Media Company, the owner of The National, was dreamed up by Doug Morris, the chairman and chief executive of Universal. Mr Morris recently said in an interview with CNET that he saw a Universal artist's video posted on Yahoo a few years ago, where it was earning advertising revenue for the search site but not a penny for the record company.

He was rebuffed when he called Yahoo's chief executive to complain, so Universal removed their videos from Yahoo and AOL. The companies eventually worked out a profit-sharing deal but the incident drove home the point that music videos have value that can be used to generate profit online. "At the moment, online video advertising attracts 3 per cent of online advertising, and by 2013 it's supposed to grow to 11 per cent," says Ricky Ghai, the executive director of the digital media group at ADMC, which bought a stake in Vevo in October.

"That's really one of the key reasons as to why Vevo was born, to capitalise on this adspend." MTV may have given up on music videos years ago in favour of reality programming, but the fans have not. Music videos make up 14 of the 25 most-watched clips of all time on YouTube, the Web's top video-streaming site. But turning this popularity into profits is not as easy as it sounds. YouTube had been in search of better ways to do it, as many advertisers were wary of mixing their brand with the company's vast library of mostly user-generated content.

Vevo's breakthrough idea was to create a branded, stand-alone player, accessible through YouTube, that presented only high-quality, professionally made videos with higher resolution than the standard Web fare. The site also plans to offer short documentaries and other films made by artists for fans to enhance the sense of an exclusive experience. "It means that you can go to YouTube to search for your video, and when you find it, you are pushed to a Vevo premium space," Mr Ghai says.

"When you arrive there, it's legitimate content, licensed content, at a certain threshold, and because it's been regulated the advertisers are quite comfortable to create a relationship with the Vevo environment." Major advertisers such as AT&T, McDonald's and MasterCard have already signed on. This new revenue stream comes not a minute too soon for the music industry. Record sales in the US have faced a steady decline for a decade, with a fall last year of 14 per cent, Neilsen Soundscan says.

While sales of digital tracks rose in that same period, their profit margin is so much thinner that these sales have not been making up for several years of shortfall. The industry eliminated 5,000 jobs in the US between 2000 and 2007, according to Rolling Stone, despite the overall economy being on an upswing. If Vevo works it will be a major shift for the music industry, which until now did not directly concern itself with the business of selling advertising.

The venture's closest ancestor is not from the music industry. Hulu, the commercial-supported website that streams popular television programmes from ABC, NBC, Fox and other networks, has widely been cited as the inspiration for Vevo; for its revenue model and the fact that it is owned by content proprietors. Hulu is a joint venture of Comcast's NBC Universal, News Corp's Fox Entertainment Group, ABC, The Walt Disney Company and Providence Equity Partners, a private equity firm that holds a 10 per cent stake.

Vevo has been able to get a little more than half the music industry on board as equity partners, in Universal and Sony. On the eve of the launch, EMI, the smallest of the majors, agreed to license its content to the venture. Dozens of independent labels have also signed on, leaving Warner Music Group the only outsider, although company officials say they are still in talks. Vevo differs from Hulu in one important way. Two years after its launch, Hulu is still available only inside the US. In contrast, Vevo launched on Tuesday in the US and Canada, and from the beginning has expressed plans to roll out in other markets including Europe and, eventually, the Middle East.

Part of ADMC's deal in buying the stake was that its digital download service, Getmo, would hold the exclusive right to be the online cash register for music and other content bought through Vevo for a period after its launch in the region. Although MTV started out as a broadcast to a few thousand cable subscribers in northern New Jersey, three decades later it is one of the most recognisable international media brands, with dozens of international native-language stations stretching from MTV Philippines to MTV Ukraine.

If Vevo does become the international phenomenon it has the potential to be, it may end up being the MTV of the 21st century. @Email:[e-mail]