Universal to Cable/Internet: Pay us for Videos

Here’s an interesting new development from mega-label Universal, via today’s NYT:

"Universal Music Group of Vivendi Universal says it will no longer provide music videos free, or at a nominal cost, to Internet and cable television services that are building a potentially giant business by playing videos on demand. Universal does not want to repeat what it considers the music industry’s ill-fated decision in the 1980’s to provide free videos to MTV."

Ill fated? MTV was (once) an enormous source of promotion and publicity for a huge slate of really mediocre talent. It drove lots and lots of sales. From a business perspective, videos for certain pop stars were huge. However, I suspect many music lovers would say good riddance to a slate of MTV friendly but barely musically competant acts.

I wonder if this applies to channels like FUSE and MTV2 (I doubt it from the article). Here are the details:

"Universal Music notified an array of Internet and cable companies that they must negotiate licensing deals for use of Universal’s music videos or remove them from their on-demand services. The record company – which accounts for more than one-third of the new music sold in the United States – also said it would no longer advertise on Internet sites or cable outlets that do not strike such licensing agreements."
(emphasis added).

Given their size and dominance of the music industry’s Oligopoly —
and their tying advert sales into — does Universals new policy raise any anti-trust
questions?  Universal sold 42 of every 100 CDs in the US in 2004.

Of course, if there’s a potential Monopoly/Anti-Trust issue, you know that Microsoft cannot be too far behind:

"The music company quietly struck its first deal under the new terms in December with the  Microsoft Corporation, which plays videos on its MSN service. The software maker agreed to pay Universal the bigger of either a fee per video viewed or a percentage of advertising revenue. All four major record corporations have been aiming to cut off a slice of the on-demand business, and while a handful of labels have claimed to strike deals to earn per-view fees or ad revenue from individual services, no label has struck such an aggressive stance before."

Heh . . . What a surprise, Mister Softee is involved in this
deal. But the big question is why the sudden interest in video fees? Consider this:

"Owing in part to the low fees and its own cheap programming costs, MTV became a juggernaut that generates some of the biggest profit margins in the media world – it earned cash flow of roughly $620 million on sales of $1.09 billion last year, a margin of about 57 percent, according to estimates from Kagan Research in Monterey, Calif."

Ahhh, they want a slice of that fat pie MTV has been keeping to itself. Makes sense, espeically considering that the label business model, failing to adapt to on line digital, is under assault. Because  of that, there is increasing pressure to find new revenue streams (i.e., ringtone sales) .

Of course, there’s the punch line to this entire article:

"As for the licensing income the record labels do receive from MTV, it is generally not shared with the labels’ artists. But Universal said it planned to pay a share of the fees it gets from on-demand services to artists and to music publishers."

Oh, yes, the artists . . . Almost forgot about them. Who wants to make book that regardless of how this plays out, artists will get nothing — or next to nothing — of this video revenue? 


Universal’s Second Chance to Make Video Pay
Jeff Leeds
NYT, February 1, 2005

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  1. Jeff commented on Feb 1

    Not an antitrust issue. Tying is when you use your market power in one product to force someone to buy another product. Like if you make the only copiers in the world but you won’t sell it to anyone unless they sign a contract to buy toner cartridges from you also, when there are many suppliers of toner cartridges.

    In this case, Universal is saying they won’t *buy* something from you unless you buy something from them. Universal, even if it has market power in music videos, doesn’t have to buy anything from anyone.

  2. umair commented on Feb 4

    Nice post!

  3. Zac Rich commented on Apr 12

    Universal Music Bites the Hand that Feeds It

    Boca Raton, FL – April 12, 2005 – When the Swept Away TV teenagers first heard about the Universal Music plan to charge websites and on demand tv programs for airing their music videos, they were sure that the new plan did not include them. After all, they did not have the music videos available on their site for download, nor did they receive any kind of revenue from airing the music videos along with the interviews on their show. After receiving 2 letters from the legal counsel for Universal Music, they found out otherwise.

    Swept Away Tv is a not for profit project dreamed up in 2000 by sisters Jaime and Amanda Rich who were then 15 and 18 years old. They got together a group of teenagers, many from at-risk family situations, who were interested in becoming the next Katie Couric or Carson Daly. Three years ago, their brother Zach took the show over when his sisters went to law school and film school at the University of Miami. Not wanting to do all the work himself, Zach recruited kids from all over Florida to help produce the 30 minute weekly teen music show.

    In 2002, student director Jeff Hendler helped put together a series of high school press conferences, held with artist’s touring in the area. Teens came from all over Florida, driving 8 hours or more to participate. Their goal was to get their favorite artists in school newspapers and video programs so that the artist could build their fan base. The press conferences were a huge success. They featured artists Sum41, Andrew WK, Something Corporate, Yellowcard, The Alkaline Trio and the Exies.

    The first letter from Universal Music Group changed all that. The first letter threatened that if they did not stop using Universal Music videos on their website and on on-demand television, that the teens would face fines and legal action. When Zach’s mother called the Universal office handling the matter, she found that the person in charge wasn’t even sure which artists on the Swept Away site belonged to Universal Music. Nancy Rich said, “I felt sure that since the kids didn’t use the whole video but cut it up and put it between segments of the interviews that Universal was not going to prosecute them.”

    The latest Universal letter of April 8th, spelled out a fine of $150,000 for each occurrence noted by the Universal legal counsel. After another phone conversation, this time with the offices of Russell Frackman, the legal counsel for Universal Music, Nancy Rich found another problem that Universal Music had with their website. On the video page of the Swept Away Tv website, the kids had posted clips from interviews and performances that they had covered for the show. All of the interviews and performances were arranged by the Universal publicity departments, and the artist’s representatives, and dated back to 2001.

    Zach Rich, host, said, “They objected to home video that my sister shot at an interview with Dashboard Confessional back in 2001 when he (Chris Carrabba) wasn’t even on their label. They said, “Take this stuff down” which was confirmed by another message from Wendy Nussbaum, Senior Director of Business Development Universal Music Group. We couldn’t believe it. Those videos are not music videos in the sense that we felt their letters were referring to.”

    The teens understandably are angry with Universal Music for failing for failing to recognize the value in their contributions. They’ve spent the past 5 years promoting Universal artists to the teen community nationwide, without making a dime for their efforts. “We started this program for the love of the music, Amanda Rich, 21, said, “it’s the new, young artists who will suffer because no one wants to take the chance that they are going to get sued by Universal. Fan sites get prosecuted too.”

    “Universal Music has spent millions promoting their recordings,” said Zach Rich, 18, “ ” Music videos are like commercials for CDs and we all know that teens aren’t going to pay to watch commercials.”

    Swept Away TV is a not for profit 501c3 organization formed to mentor and provide career training for teenagers interested in the media fields. Formed in 2000, the program boasts more than 900 graduates who still keep in contact with the program. 5 seasons of the show have aired with a total of 145 episodes filmed. Some of the artists interviewed over the past 5 years include: Maroon5, Sum 41, John Mayer, Jason Mraz, Slayer, The Black Eyed Peas, Avril Lavigne, Good Charlotte, Something Corporate and Papa Roach. The show airs nationally on Varsity TV, through Comcast on Demand and on myvtv.com. The show also airs in 50 additional markets on a variety of commercial, public educational, and community TV stations. The website is located at http://www.sweptawaytv.com.

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