LA Times: Recording labels and websites in a music video tussle

The removal of Warner Music Group’s videos from YouTube over the weekend highlights the growing tension between music labels and websites over what is becoming an important source of revenue for the beleaguered recorded-music industry: advertising and licensing fees from music videos, the foundation that built MTV but which has now largely migrated to the Internet.

The impasse comes at a time when all four major labels — Warner, Universal Music Group, Sony BMG Music Entertainment and EMI Music — are renegotiating their licensing deals with YouTube, the largest video site.

YouTube and social networks such as Last.FM pay for the rights to stream music videos. Typical licensing agreements pay either a minimum fee based on the number of times a video is viewed or, if the sum is greater, a share of the ad revenue, helping to make music videos a small but fast-growing source of revenue for the labels. One label executive estimates that music videos will generate about $300 million for the industry this year.

Record labels are eager to explore ancillary revenue to help offset free-falling CD sales. This year’s album sales are down 45% from 2000, according to Nielsen SoundScan. A recent Forrester Research report projects that disc sales will continue to decline by an annual rate of about 9% over the next five years, as retailers reduce the shelf space allotted to CDs and music fans shift their purchases online.

As a result, music executives are increasingly pressing for what the industry calls 360 deals, in which the labels grab a share of revenue once reserved for the artist, such as concert ticket sales and proceeds from the sale of T-shirts and other merchandise.

“The idea of getting as many revenue streams [as possible], licensing as broadly as possible, and making those digital pennies add up to dimes and hopefully add up to dollars is clearly the game everybody’s playing right now,” said David Card, research director at Forrester.

Music videos are just one of myriad ways in which the music companies slice and dice a music single, from 99-cent downloads on iTunes to mobile-phone ring tones.

“Video is not the largest category, but it’s a significant category, to the tune of 5% or 10% of the total,” said Thomas Hesse, president of global digital business for Sony BMG Music Entertainment. “It’s a significant and growing number.”

Posted by Ted • Tuesday, December 23, 2008 .