America Online will begin paying Universal Music Group and Warner Music Group for access to their music video libraries under a pair of video-on-demand licensing agreements to be announced tomorrow (A
America Online will begin paying Universal Music Group and Warner Music Group for access to their music video libraries under a pair of video-on-demand licensing agreements to be announced tomorrow (April 19).
Terms of the deals were not disclosed. But sources say AOL will pay the labels either a per-play rate or a percentage of advertising revenues generated by the offering -- whichever is greater.
The issue of compensation for music videos first came to the fore in February, when UMG announced a new policy that it would no longer service new or catalog videos for VOD playback on a promotional basis. The shift in strategy forced virtually every leading provider of VOD content, AOL included, to yank Universal videos from their lineups.
UMG -- which spends millions each year to make music videos -- is looking to set up such clips as an additional revenue source, as online services and cable providers look to build businesses around VOD.
"It's really a landmark event for the industry," UMG chairman/CEO Doug Morris tells Billboard.biz. "Video on demand is not promotional. When you type in what you want to see, someone should pay for it. These companies are already selling advertising next to the videos. Why should they be developing a revenue stream without paying us and our artists?"
Yahoo! Music, MTV.com and RealNetworks' RollingStone.com are among the music portals still not featuring UMG videos in the wake of the label's new policy. Negotiations between those companies and UMG are believed to be ongoing.
As for AOL, it becomes UMG's second licensee under the new policy, joining Microsoft's MSN Music, which signed on two months ago.
From a strategic standpoint, AOL Music made the deals as part of a larger effort to build a catalog of videos for playback. In addition to offering videos for on-demand viewing, AOL will create artist- and genre-based music video channels. Up to now, AOL has offered a rotating group of promotional videos.
Agreements like the AOL deals with Warner and Universal figure to open the door to a wave of pacts between other service operators and labels for video content. While WMG has not required online services to remove videos in exchange for payment, sources say the company will be looking to generate revenues from VOD moving forward.
AOL says it is in talks with EMI and Sony BMG for similar deals.