The young founders of YouTube may have been the biggest beneficiaries of a $1.65 billion deal last week with Google, but they have some unexpected bedfellows old-line media companies that had been considered YouTube's biggest legal threat.
Three of the four major music companies Vivendi's Universal
Music Group, Sony and Bertelsmann's jointly owned Sony BMG Music
Entertainment and Warner Music Group each quietly negotiated to
take small stakes in YouTube as part of video- and music-licensing
deals they struck shortly before the sale, people involved in the
talks said Wednesday.
The music companies collectively stand to
receive as much as $50 million from these arrangements, these
sources said.
Because a significant portion of the videos posted to YouTube
contain copyrighted songs or video material, the Web site had been
considered a litigation land mine. Last month, Doug Morris, the
chief executive of Universal Music, called YouTube and MySpace
"copyright infringers" and said that the sites "owe us tens of
millions of dollars.
"
Just this week, Universal filed suits against Bolt and Grouper,
two smaller video-sharing sites, for allowing users to post hundreds
of pirated music videos of its artists, including Mariah Carey, 50
Cent and the Black Eyed Peas.
The deals that the music companies struck for stakes in YouTube
should help to shield Google from copyright-infringement lawsuits,
an issue that concerned some Google investors when the YouTube deal
was first announced. Still, other copyright holders, including the
Hollywood and television studios, could pursue legal action if their
content appears on YouTube.
The decision to take a stake in YouTube is a sharp departure from
the tack that record companies took regarding Napster, the pioneer
file-swapping service that transformed the industry in 1999. Back
then, after the major companies filed suits against Napster, the two
sides discussed various settlements that involved the music
companies receiving a big equity stake.
The Napster talks, which were led on the industry side by Edgar
Bronfman Jr.
, at the time the chief of Universal's then-parent
Seagram, eventually broke down. The record companies went on to win
a series of legal victories that ultimately forced Napster to shut
its site, but the labels have been fighting an uphill battle against
free peer-to-peer file-sharing software providers and users ever
since. The music industry has also filed thousands of lawsuits
against individuals, hoping the threat of civil fines will reduce
unauthorized sharing of songs.
But the failure to end digital piracy and the continuing slump in
CD sales has slowly pressured record executives to rethink their
approach to Internet distribution.
These days, music marketers are eagerly pursuing fans by
advertising on independent music blogs and on vast online social
networks like MySpace. Universal's Interscope unit even struck a
deal to distribute a label created by MySpace.
Lately, music companies have been trying to wring more revenue
from their music videos. Instead of offering music videos at a
nominal fee as a way to promote CD sales, the companies have struck
deals with services like Yahoo to share in revenue from
advertisements that run in front of the music clips.
Indeed, the companies' deals with YouTube call for them to share
revenue from ads that will run alongside their music videos.
As part
of the deal, YouTube will use new technology to identify copyrighted
material that users have uploaded to the site without permission.
It was Bronfman, now chief executive of Warner Music, who struck
the first deal with YouTube. Universal and Sony BMG followed suit.
Details of the stakes that the music companies received as part
of those revenue-sharing and content-licensing deals could not be
learned immediately. Of the four major record companies, only EMI
did not strike a deal with YouTube.
Spokesmen for YouTube, Google, Universal, Sony BMG and Warner all
declined to comment.
EMI did not return a telephone message left
late Wednesday night.
News RSS