After nine months of wrangling, Warner Music Group (WMG) has finally agreed to allow its content back on YouTube, becoming the last of the four major record companies to strike a deal with the site. The move means Google's vast video library will now feature original videos by Madonna, R.E.M. and other popular artists.
The agreement marks an end to hostilities between the recording industry and YouTube, which has drawn fire from media companies over copyright infringement ever since Google bought it for $1.65 billion in 2006. The deal also represents something of a vindication for YouTube, a company critics have said could never go legit, let alone make money for Google.
Financial terms of the pact, which was announced Tuesday, were not disclosed. But company executives said Warner Music, the world's third largest record company, would receive over half of the advertising revenue generated from the videos.
"With Warner on board, we now have artists from all four of the major music labels and publishers together with hundreds of indie labels and publishers on our platform," Chris Maxcy, YouTube's head of music partnerships, wrote in a blog post. "Warner will also be able to sell their own ad inventory and will use our Content ID technology to claim and monetize user-generated videos uploaded to YouTube by Warner Music fans."
"This sets us up for a sustainable partnership going forward," Maxcy added on a conference call after the announcement. Warner Music will receive a "vast majority" of the revenue, he said.
The deal is something of a relief for Google, which has been criticized for basically paying $1.65 billion for an asset which many said would never generate significant profits. Earlier this year, Credit Suisse analysts estimated YouTube would cost nearly $500 million to Google this year, despite pulling in $240 million in revenue.
"With 10 billion video views a month, Warner needs Youtube as a marketing channel more than Youtube needs Warner," said Michael Robertson, CEO of MP3Tunes.com, and a veteran of the digital music wars. "It's positive that tech and music companies can find a deal that works for both, but I don't think a WMG managed sales team is going to be able to generate more revenue from their videos than Google's advertising machine can since that's their forte."
Since buying YouTube in 2006, Google has never seemed particularly concerned about the site's lack of profitability. Last year, company chief executive Eric Schmidt asserted that while the video site had yet to contribute to Google's earnings, YouTube "doesn't hurt our bottom line." After all, Google, a $120-billion company by market cap, has revenues of $22 billion annually, and rising.
On one level, Google's purchase of YouTube was always a strategic play designed to lock up the fastest-growing internet video site and keep it away from competitors. On another level, it almost doesn't matter if YouTube makes a lot of money now or in the future. YouTube has already more than paid for itself in terms of intangible value to Google. Today, YouTube is almost synonymous with web video. Whether its the latest political speech or funny pet video, YouTube has become a cultural brand like no other.
Warner yanked its videos from the YouTube last December after licensing deal talks broke down over the booty split. Warner said it plans to explore third-party partners and would launch special features on YouTube for its artists. Now, let's see if YouTube and the Hollywood can make up and play nice.
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