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VEVO threatens to leave YouTube: Can they survive alone?


Vevo founder and current CEO of Sony Music Entertainment, Doug Morris, is frustrated over YouTube’s high revenue share rate. So frustrated that he has threatened to withdraw Vevo from YouTube. The LA Times has learned that Vevo is considering taking its business to a competing video platform if Google does not comply and lower its cut of advertising revenue.

The Vevo music video channel is the most-viewed YouTube partner property to date, according to comScore’s latest (May 2012) YouTube partner online video ranking. The channel was also second most engaging YouTube property with viewers spending approximately 55.1 minutes per viewer on Vevo. It’s a channel that has remained profitable for both YouTube and Vevo thanks to its deal with Google that enabled Vevo to set its own ad rate, higher than what YouTube was charging its advertisers. With both factors combined, Google would lose what could easily be its top revenue generating channel. It’s a relationship that’s highly reminiscent of Zynga, which first lived on Facebook and generated 15 percent of Facebook’s total revenue in Q1 2012.

“YouTube has been good partners. They’re just extracting too much money for the enterprise to work properly. The videos are expensive to produce. And there are many mouths to feed on our end. You have to pay the artist, the record companies, the publishers,” Morris told the L.A. Times.

According to a LA Times source who is familiar with the matter, Vevo has been weighing its options and among the properties eager to take away Vevo from Google are Facebook, Microsoft, Apple, and Amazon. “They stand a chance of losing the deal,” Morris added.

To give you an idea of just how much revenue is taken by YouTube, after a 10 percent sales commission, YouTube keeps between 30 and 50 percent of the net advertising revenue. Morris declined to reveal how much YouTube was taking from Vevo.

Vevo Justin Bieber

Justin Bieber is on Vevo

Vevo may hold the bargaining power over Google as its contract winds down this year. An earlier report by Billboard from March 2012 corroborates its upper hand in the negotiations as Vevo was in early talks about moving its channel to Facebook. But our educated guess is that Vevo is bluffing.

In an extreme circumstance, the repercussions of a public break up may motivate other successful channels to seek alternative platforms that could offer a larger cut of the advertising revenues. It would certainly fuel the discussion about whether YouTube is capable of evolving its brand into an original programming platform, while meeting the demands of its existing partners.

However the impact on both Vevo and YouTube ending the symbiotic relationship would likely be too significant on both platform’s bottom lines and users.

Vevo’s president and CEO, Rio Caraeff, revealed back in 2010 at the Billboard Music & Money Symposium that 90 percent of its users came from YouTube. While the figure is admittedly two years old, and from its syndication partnerships the percentage of views from YouTube have decreased, we can roughly estimate that Vevo.com accounts for approximately 12 percent (based on Compete’s estimation of 5 million unique visits in May 2012) of the 42 million unique viewers of Vevo.

Vevo in particular risks losing a significant number of viewers. The reason for this is the sheer volume of visitors that YouTube boasts on a monthly basis.

YouTube has consistently been the top online video destination year after year according to Nielsen. In May 2012, Nielsen found that YouTube topped the charts for online video views in the United States with 136 million unique viewers. Lagging behind with the second most viewed online video destination was Yahoo with 45 million unique viewers. Vevo trailed in third with 42 million unique viewers. Note that the figures for Vevo include videos watched on its independent destination, Vevo.com, and YouTube.

To put this into perspective, YouTube boasts a viewership three times the size of the number of Vevo viewers, while the number of Vevo’s unique viewers in May nearly equates to the combined unique views of Facebook (23 million) and Microsoft (24 million).

It’s not hard to see that much of Vevo’s success can be attributed to YouTube. YouTube’s distribution channel reaches just about every major market in the world, and its recommendation algorithm is a major player in video discovery and generating revenue. Vevo’s views could decline dramatically if it were to jump to a smaller player like Facebook or Microsoft. YouTube viewers may be inconvenienced when searching for Rhianna’s latest music video, and could care less if it came from Vevo or someone else out there that uploaded an unlicensed copy onto YouTube.

The participating labels that distribute its music through Vevo in particular could even branch off to focus on its own standalone YouTube channel, now that Vevo has laid down the framework and standard for monetizing music videos. At the end of the day, the music labels and artists will go where the greatest number of eye and ears are, and currently most viewers are on YouTube.

For example, Ultra International Music Publishing, which at the New Music Seminar discussed its success as a standalone channel, rakes in seven figures on a monthly basis. The label attributed much of its revenue to YouTube thanks to the video platform’s unparalleled recommendation feature that doubles as a music discovery platform for YouTube viewers.

With this in mind, it’s hard to say whether YouTube or Vevo would be more affected by a break up. YouTube clearly has the advertisers in mind, as indicated by its presentation at the Newfronts in New York City. With its successful channels in tote, YouTube hopes to attract advertisers, and at a premium that would rival Hulu, which currently garners the most advertising dollars per viewer. With so much at stake, we can’t imagine that despite the slow negation process both parties wouldn’t be able to come to a consensus.

Ultimately, all that matters for viewers is that the process of finding the desired content on YouTube is quick and easy.

But despite the outcome, it’s evident that Google has more battles ahead as YouTube experiences the growing pains of having to please its existing channel partners, while it focuses on becoming an original programming platform.

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