December 09, 2009

By By Glenn Peoples, Nashville

Early visitors to Vevo may notice that Warner Music Group is not part the video site's catalog upon launch, which has led industry watchers to this: Why is WMG the one party not involved, or slow to be involved, with deals like this?

WMG's absence speaks to the different approaches to monetizing video content. More importantly, it offers an indication the company may have a different view of its strengths and weaknesses than UMG. Basically, a company needs to decide if it wants to earn trade value (such as wholesale prices charged by distributors) or retail value (such as the final price paid by a consumer). Moving from trade to retail requires different skills that not all companies are equipped to handle.

A music company excels at finding, developing, marketing and promoting bands, but it tends not to derive its value by actually creating the final link to the consumer. That is usually the domain of such parties as retailers (both physical and digital), television and movie companies (for synchronizations) and promoters (putting on live events).

Vevo is a bet that music companies should use their scarce resources to build and operate that final link to end-users. And not all companies may agree. UMG does count YouTube as a partner in Vevo, so it's not like the company built Vevo from scratch. And WMG does directly reach consumers. But it has created technology partnerships to do this, and WMG is obviously trying not to stray too far from its core competencies.

In August, when Cisco unveiled its Eos platform, Michael Nash, WMG's senior VP of digital strategy and business development, explained to Billboard that the company understands the role technological innovation plays in driving new business, but added "we're not a technology company."

There are alternative ways to monetize videos than to build and operate a portal like Vevo. As Rio Caraeff, the head of Vevo, explained in a Q&A with Billboard, WMG's video strategy is to drive traffic to its artist Web sites. An artist's Web site, when using the proper platform and tools, is an e-commerce environment that's well suited to the multi-rights deals artists sign these days. But WMG actually has a two-pronged approach: it can make money from mere viewing, too. Through its partnership with Outrigger Media, WMG will place ads on its own artist videos and split the revenue with YouTube.

Of course, there are a number of reasons why a company would not be involved in Vevo. Negotiations tend to break down over matters such as revenue and control. Universal Music Group, which founded the site, has been joined by equity partner Sony Music and, just this week, EMI Music.

Vevo is an experiment, but it is a necessary experiment. In these early days of digital music and online consumption, music companies must place their bets on which strategies will work best. And Vevo is a big bet that has pulled resources away from other potential projects.

Follow Billboard senior analyst Glenn Peoples on Twitter at twitter.com/billboardglenn.

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