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The music industry cashes in on online videos

The music industry cashes in on online videos — Labels are demanding that sites like Yahoo! and AOL pay them for music video content

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While babysitting his preteen grandson last December, Universal Music boss Doug Morris had a rather lucrative epiphany. ”He was watching [Yahoo! Music] and he selected [Universal artist 50 Cent’s] ‘In Da Club’ three times,” says Morris, who was surprised that the online service cost nothing. He got a bigger shock the next day when he learned that his company provided the clips as a promotion and that Yahoo! streams more than 350 million videos a month. ”If you’re gonna ask to see a video, it’s not promotional. So I said, Let’s change the policy.” Now Morris is leading a charge that has the potential to reap big bucks for the financially challenged music biz.

Some 20 years ago, after MTV came on the scene, record labels agreed to provide their videos to the network for a licensing fee and no percentage of ad revenue. But as MTV grew into a global moneymaker, labels have come to regret that move and want to avoid repeating the mistake with new technologies. So in February, Morris’ Universal Music Group pulled its videos from all online outlets, demanding to renegotiate the terms of payment. That gamble paid off last week when Universal, along with Warner Music Group, struck a pact to provide video content to giant online music purveyor AOL (which, like EW, is owned by Time Warner) in exchange for a percentage of ad revenue. (A deal with Yahoo! is expected this week.) And surprisingly, online video outlets aren’t balking. ”Labels should be paid based on people seeing the videos that they want,” says Yahoo! head of programming and label relations Jay Frank. ”For us, the label asking us for money is just the first step in a changing landscape.”

With Yahoo! and AOL Music collectively streaming billions of clips every year, ”We’re going to have a really substantial stream of revenue coming in,” says Morris. And the value doesn’t end there. ”It’s not enough to give people a Coldplay video,” says Jack Isquith of AOL Music. Indeed, the band’s upcoming AOL exclusive concert has become an all-but-required strategy for big and new acts alike. And there’s proof that newbies (John Legend, My Chemical Romance) are breaking online, with radio and TV following. Frank says of the now-platinum artist JoJo, ”[Universal] didn’t think they had a lot of traction. Yet within two weeks of the video debuting with us, we knew she was going to be a star.”

For once, MTV is following — it’s joining the online fray this week with MTV Overdrive. The site will feature an era-spanning video database (Dio fans, rejoice!), plus exclusive news, interviews, concerts, movie trailers, and DVD-extra-like content from its shows. These additional avenues were a big reason Morris drew a line in the sand. ”It was important to do this before companies built a model like MTV did [in the ’80s.]” Hope Morris’ grandkid negotiated a nice cut.