Tuesday, December 23, 2008

The Warner Music v. YouTube Grudge Match -- Why Videos Matter

As anyone knows who has even remotely followed the music industry over the past several years, the music labels are hurting ... and hurting badly. They are in a desperate search to develop new business models and revenue streams to replace the plunge in CD sales -- down 45% since 2000. We are talking billions and billions of dollars here -- simply gone. While the pervasive nature of music has exponentially grown during those years (i.e., consumers can find music literally everywhere over the Internet), the music labels' ability to monetize their content has fallen off a cliff.

That's why Warner Music has pulled its content from YouTube, as I reported yesterday. Music videos -- and the growing market for them on the Internet -- presents one "brightening" spot for the labels as the number (and size) of legitimate music-related sites grows.

Just a few years ago, the labels generated essentially $0 from the online distribution of music videos. Now, that number is closer to $300 million. That is a drop in the bucket, of course, when billions and billions of dollars have been lost (and when the bleeding of the labels' major revenue streams continues unabated). But, you can imagine -- the labels are understandably desperate to keep (and grow) what they have. And, Warner Music has taken its draconian steps to pull its content from YouTube because YouTube -- in the midst of its licensing renegotiations -- is refusing to pay the label what Warner Music believes its content is worth.

The parties will, of course, reach an amicable agreement ... and this will happen sooner rather than later. YouTube needs the content from one of the few original and remaining major music labels (and the company also needs to be "legitimate"), and Warner Bros. needs the revenues ... badly.