YouTube-Universal Music Deal

It's no secret that YouTube has run into its share of problems. Advertisers have shied away from the site's clutter of amateur videos, and finding more professional films has been extraordinarily difficult, given YouTube's present navigability issues. As a result, the ad rates have stayed in the basement, right with the number of eyeballs. In addition, YouTube's relations with music companies have been increasingly strained by licensing disagreements; Warner Music's videos are no longer available on the site, and you can't view any of the major music labels' videos in Germany and the United Kingdom. The only partner YouTube has been relatively cozy with is Universal Music. And yesterday, the two companies announced a mutual project that could possibly repair YouTube's relations with other music labels, provide a reliable ad revenue stream for both firms, and finally provide an easy Web destination for music videos.

It's called VEVO, and once it's up and running, you'll be able to watch videos from Universal's stable of talent without having to sort through the clutter of mashups you usually find on YouTube. Universal will own the site, but YouTube will provide the technology and collect a piece of the ad money. The new partnership will clarify all licensing arrangements between YouTube and Universal, and Universal, which was flirting with the idea of creating its own video showcase Web site on its own last year, is now trying to convince Warner Music (WMG), Sony, and EMI to join the partnership and post their own properties on the site. In addition to ending the licensing and ad revenue fights, the new site is designed to boost ad revenue by setting aside an exclusive repository for professionally produced content, easing advertisers' worries that no one will see their spots amid the cacophony of amateur clips usually found on YouTube. "We're hopeful that this partnership will set a positive example of how the digital and music industries can work together," wrote YouTube Vice President of Business Development Chris Maxcy in a blog post.

This new deal continues YouTube's effort to re-create the magic of Hulu, the movie and television Web site that is dedicated exclusively to professional content. YouTube is already working to segregate professional clips from amateur videos and has been striking deals with Sony (SNE) and Disney (DIS) to post more movies and short films from ABC and ESPN. With this deal, it's clearly trying to do the same with music content.

But will it work? CNet's Greg Sandoval is at least a little skeptical. "While Universal Music's YouTube is by far the largest on the site, with nearly 4 billion views, nobody knows for sure whether a standalone music-video site can attract a big audience or ad revenue," he writes. "The question is whether Universal Music's content is attracting viewers to YouTube or whether visitors stumble on to the videos while they are already on YouTube."

On the other hand, Wired blogger Eliot Van Buskirk thinks this could revolutionize the way people listen to music on the Web. He's a little worried that Universal might embed ads in the videos or bookend the clips with ads, driving away irritated viewers. But if the rest of the music labels join in, users may have no other choice. "There could soon be no other game in town, at least as far as some of these videos go. If the rest of the majors join, Vevo could become 'the' (as in, 'the only') place on the web that can legally play or allow other sites to embed this desirable content. It could end up powering every licensed service you can access. If this works, YouTube (as Vevo) really could save the music business."

Either way, it's good to see YouTube taking serious steps to dig out of its hole. With a $1 billion Viacom lawsuit, Hollywood studios angered by its cavalier attitude toward copyright, and a site hopelessly cluttered by amateur clips no advertiser wants to flog its products around, the site has long struggled to monetize itself, despite its popularity. Now, YouTube has signaled that it's serious about revamping its entire model.