The man who made music videos pay

Andrew Edgecliffe-Johnson and David Gelles Financial Times 12/21/11

Doug Morris, a non-technologist leader in a technology-led field: ‘You know how you lead this company into the 21st century? You get a lot of hits’
Doug Morris credits his grandson with the inspiration for Vevo, the website that in two years has turned music videos from a promotional expense that an embattled industry was finding harder to justify into a source of digital income that executives talk of in the same breath as Spotify.

Vevo, a venture of Sony Music, Vivendi’s Universal Music and Abu Dhabi Media Company, told the FT this week that it plans to take on MTV by getting music videos and related programmes on to television screens through internet-connected devices or even a channel of its own.

Mr Morris, chief executive of Sony Music Entertainment since this summer, expects Vevo’s revenues to rise from $50m in 2010 to $300m next year, hailing its success as evidence that record labels are not as digitally flat-footed as critics maintain.

It was born out of frustration with music video economics a generation after MTV launched, he says as he recalls finding his grandson consuming music videos online.

“I’m watching him watch In Da Club, [produced] by Dr Dre, and I see all these ads coming up alongside,” he says. Mr Morris, then running Universal Music, asked a colleague how much they were making from the ads and was told: “Nothing”.

He threatened Yahoo, MTV.com and others that Universal would take its videos down if they did not pay up. The tactic worked, but by 2008, when Google’s YouTube had become the dominant online video site, neither side was happy with the revenue being generated.

YouTube was struggling to recoup its music licensing costs, as many advertisers were wary of their brands appearing alongside more unruly user-generated content. “You could have a perfectly professional video of Beyoncé mixed in with two elephants mating,” Mr Morris notes.

Negotiating with Google’s “layer upon layer of engineers” was “like dealing with a wet cloud”, he recalls, until Bono, the U2 frontman, arranged a meeting with Eric Schmidt.

Mr Morris told the Google chairman that Universal could replace poor-quality video copies on YouTube with high definition originals in a slick setting that would appeal to advertisers. He picked Rio Caraeff, Universal’s head of digital music, as Vevo’s CEO, with YouTube providing the technology and sharing advertising revenues.

Mr Morris took the idea to Rolf Schmidt-Holtz, Sony Music’s then CEO, who became his rival’s partner in Vevo. Abu Dhabi Media Company made a small financial investment, EMI made its music available without getting a stake, but Warner Music remains a holdout.

Since the 2009 launch, about 50 videos have racked up more than 100m views, led by Justin Bieber and Lady Gaga hits; more than 600 advertisers have signed up, from American Express to Walmart; and about $100m has been paid out to music companies.

The proceeds rank far behind global digital download revenues, which Gartner estimates reached $3.63bn this year, but Mr Morris says Vevo can be as important a digital business as Spotify and Pandora, which drove subscription revenues to $532m this year.

Vevo has not ended the industry’s clashes with YouTube – this week a US music lobby group declared that Google’s anti-piracy promises “remain unfulfilled” – but Mr Morris says the partners’ interests are aligned.

He also sounds confident that the alliance of Universal and Sony, the clear industry leaders after this year’s auctions of Warner and EMI, will survive. “Joint ventures have their own set of unique challenges,” Mr Caraeff adds, but he insists that he is not planning a sale and has “no interest personally in running a public company”.

Were there to be any initial public offering or deal, Mr Morris says, “it would be important for record companies to maintain some control”. For now, Vevo’s focus is on TV and mobile platforms, and on building revenues outside the US.

It has plans to hire sales forces in France, Australia, Brazil and beyond in 2012 and for Vevo Arabia, a separate venture with the Abu Dhabi Media Company. It is also looking at charging subscriptions for video premieres or an advertising-free experience.

Building Vevo has been “the most fun I’ve had,” Mr Morris says, but he is also keen that it should silence those who doubt music executives’ digital credentials.

“Not being a technologist, I get criticised. People say, ‘how’s he going to lead this company into the 21st century?’ You know how you lead this company into the 21st century? You get a lot of hits. I don’t know why that’s such a hard concept for some people.”

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