While talk about free, ad-supported music streaming sites dominated the tech and music industries in 2009, who would have thought that ad-supported video streaming sites would finish the year with more optimism?
As Billboard reported on Wednesday, EMI has become the first major music group to license its content to video streaming site Hulu, a joint venture between Fox, ABC and NBC. (Hulu’s new Norah Jones channel puts one of EMI’s top artists on the highly trafficked video streaming site just as Jones’ new album hits stores.) On the same day, Vevo announced it will launch on December 8. Vevo is a music streaming site created by Universal Music Group and powered on the back-end by YouTube.
The two promising developments for music video came on the same day as news broke that MySpace will acquire ad-supported streaming company Imeem for a reported $1 million. (Earnouts for managers could bring the total price to $8 million.) Add in continued skepticism about the economics of ad-supported music services – even hot newcomer Spotify – and it’s become clear the music industry has come to a fork in the road. Audio streams are taking a tortuous path to sustainability. Warner Music Group wrote off its investment in Imeem earlier this year, and labels have become hesitant to lower royalty rates for business models that garner little faith. All four majors have equity in MySpace Music, but glimpses of a successful product have yet to appear.
Video streams are suddenly on a more optimistic path. Sony Music will be involved with Vevo upon its launch and has an undisclosed financial stake in the company. WMG reached a smart deal with YouTube that has WMG selling ads for its own videos and sharing the revenue with YouTube. And now Hulu, an ad-supported site that appears to be faring well after only 19 months of operation, comes into play. Hulu has the kind of user base, momentum and stability that make it a good partner for a music company. Back in May, NBC CEO Jeff Zucker said Hulu was cash-flow positive and would be profitable “very soon.” In September, Nielsen ranked Hulu the No. 2 video brand in the U.S. (YouTube was a distant #1). Hulu had over 437 million streams and 13.5 million unique viewers that month.
So why have optimism for ad-supported video streaming?
-- Video streaming engages the user while audio streaming is far more passive. The business implication here is that video streaming offers more opportunity to market and upsell. Viewers can be directed to the artist’s web page, for example, or alerted to special sales or promotions. In comparison, an iTunes or Amazon.com buy link at an audio streaming site is incredibly passive.
-- Video is still mainly a promotional vehicle. In other words, video sites promote rather than give away the main product, recorded music.
-- Video can satisfy consumers’ curiosity and encourage artist discovery. A 2009 Human Capital survey of 1,000 people from ages 15 to 24 found that 38% of this age group use YouTube as their primary website to check out new artists. An artist’s web page and MySpace page each collected 15% of votes.
-- The new video sites are being set up to better monetize labels’ most popular content. And video CPMs outweigh audio CPMs. That makes video streaming a better way to monetize those unwilling to pay for music (a.k.a. the “How to monetize the unmontizeable?” problem).
Optimism is not success or profit, but there is plenty to like about streaming video. In contrast, the continued perplexity of streaming audio has reduced optimism and turned attention to paid models (see Rdio and MOG).
Follow Billboard senior analyst Glenn Peoples on Twitter at twitter.com/billboardglenn.