Peter Kafka

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How to Solve the Big Music/YouTube Spat: Copy MySpace

Since negotiations between Warner Music Group (WMG) and Google (GOOG) broke down this month over YouTube money last month, some of my colleagues in the press have suggested that the big music labels are ready to walk away from the video site altogether. Perhaps a venture with Hulu? Or a Hulu-like venture of their own, where they stock the site with their own content?

Quick answers:

  • Do expect a deal with Hulu. The labels have been talking to the joint venture between News Corp.’s (NWS) Fox and GE’s (GE) NBC for a while, and there’s upside for everyone involved. (News Corp is the owner of this Web site.)
  • Don’t expect a standalone site. Music videos are popular, but not popular enough to justify creating another property, especially when you can find them all over the Web. And good luck finding someone to fund the project to the tune of $100 million, as Providence Equity did for Hulu.

But here’s what’s not going to happen: A scenario in which the labels end up keeping their videos off the world’s biggest video site.

In case you haven’t noticed, the music labels are desperate for any revenue they can find. They can’t afford not to work with YouTube. And there’s incentive for YouTube to keep them on, too: The video site would like to get serious about selling ads, and music videos are both popular (they dominate the site’s most-viewed list) and ad-friendly inventory. It still doesn’t have much of that.

So the two sides need to get something hammered out. And the best way to do it is to steal a page from MySpace, and ape MySpace Music. YouTube Music has a nice ring to it, doesn’t it?

What would YouTube Music look like? It’s not that important. Maybe in addition to videos, it would offer downloads via Amazon’s (AMZN) digital media store, as MySpace does. Maybe it would have detailed biographies and a spartan design, like that MTV video site that MTV pretends doesn’t really exist yet. Doesn’t matter.

What is important: Like its MySpace predecessor, YouTube Music would take the large audience that already consumes music content throughout the site and assemble it one place. That might have some benefits for the site’s users. But it’s undeniably useful for the site’s ad sales team: Advertisers like clean, well-lit spaces with lots and lots of bodies, and partitioning off music creates just that.

That’s why MySpace Music was able to launch with an array of blue-chip advertisers last fall. And there’s no reason why they wouldn’t pony up for YouTube music too.

Yes, there will be other money issues to resolve. Right now, for instance, the labels get about a half-penny every time someone plays a video on YouTube, and they’d like more. I hear they’re asking for as much as an eighth of a penny. Meanwhile YouTube would like to stop giving out guaranteed payments altogether, and move to a straight revenue share.

It’s also hard to imagine YouTube handing out cash and/or equity in the venture, as MySpace did with its site last year. MySpace Music’s creation was tied to the settlement of a copyright lawsuit filed by Universal Music Group. And the labels don’t have that hammer available to them–they settled with YouTube years ago.

But those are deal points, and there are plenty of people on all sides who want to get a deal done. The good news is that some of them are already playing around with an idea along these lines, I’m told. I wouldn’t expect a deal soon. But this one makes too much sense not to happen. Right?