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Universal to Cable/Internet: Pay us for Videos

Posted By Barry Ritholtz On February 2, 2005 @ 6:52 am In Finance,Music | Comments Disabled

Here’s an interesting new development from mega-label Universal, [1] via today’s NYT [2]:

"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 [3] 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 [4] and MTV2 [5] (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 [6] 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 [2]
Jeff Leeds
NYT, February 1, 2005

Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/02/universal-to-cableinternet-pay-us-for-videos/

URLs in this post:

[1] Universal,: http://new.umusic.com/flash.aspx

[2] NYT: http://www.nytimes.com/2005/02/01/business/media/01music.html?ex=1264914000&en=9ed7dab02f0601e0&ei=5090&partner=rssuserland

[3] MTV: http://www.mtv.com/

[4] FUSE: http://www.fuse.tv/swf/?bandwidth=HIGH&search=null

[5] MTV2: http://www.mtv.com/onair/mtv2/

[6] 42 of every 100 CDs: http://bigpicture.typepad.com/comments/2004/11/universal_domin.html

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