YouBoob: Warner Screwed Up

Ever since Warner Music's videos were pulled from YouTube over the weekend, analysts and reporters have been scrambling to figure out what went wrong. At first, you might think that this is the latest example of a swaggering Google pissing off content providers and walking all over copyright law, a la Viacom. But you'd be dead wrong. As Los Angeles Times reporter Dawn Chmielewski points out, music companies have been scrambling to find alternate sources of revenue now that CD sales are shrinking by 9 percent a year and have settled on music-video sites as the next big thing. All four major music labels—Warner, Universal, Sony BMG, and EMI—are currently renegotiating their contracts with YouTube and are seeking to grab a bigger piece of the pie, both in terms of licensing fees and ad-revenue sharing. Warner may have just wanted too much.

Online videos are now the portal by which today's crazy kids discover and boogie to new music, and the potential to cash in is explosive. According to the Times, Universal has emerged as the leader in exploiting the Web, earning some $100 million from online music deals, most of which comes directly from YouTube. (Although, it must be noted, Universal still makes more money selling cell phone ring tones, so let's not go nuts.) And music labels haven't exactly been known for settling for a modest piece of the pie; the Times notes that labels are now demanding a share of concert ticket and merchandising revenue, which has long been the main source of money for the actual musicians. One source claimed that music labels are demanding licensing fees of at least $20,000 a month, no matter how small the Web site.

So it may have been in that spirit that Warner Music, according to CNet's Greg Sandoval, rather stupidly played hardball with YouTube. Sandoval reports that the two parties were on the verge of signing a new deal when Warner representatives came in with an "eleventh hour demand" for more cash. But Warner didn't have the juice to back it up; while Universal Music's YouTube videos have been seen 3 billion times so far, Warner's music is lagging far behind, with 278 million views. YouTube took one look at the new numbers and began pulling Warner's videos from the site on the spot.

That, Sandoval reports, was the last thing Warner expected. Suddenly, its music had vanished from the biggest thing on the Internet. And YouTube went public first, with a blog post on Friday, forcing Warner to scramble to get its own version of events out in the public eye. In short, Warner tried to get tough with YouTube, and YouTube called the company's bluff. "Warner overplayed its hand," Sandoval writes. "YouTube can afford to let Warner walk." Wonder what Madonna will say now that her music can't be seen on the biggest video site in the world.