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THE LEFSETZ LETTER: Online Video Monetization

How can Vevo not be profitable?

That’s what Rio Caraeff said in the "Financial Times". That "We hope to be

profitable in a fairly short number of years."

Let me see… You aggregate already produced videos, which in any event are on

a different balance sheet, you make a deal with YouTube wherein 80-90% of

your content is streamed on that site, and you collect advertising, this is

the holy grail of Vevo, AND YOU’RE STILL NOT MAKING MONEY??

Did you read the "Fast Company" story on Warner Music? Now you’ve got to

read anything in the straight media about the music business with a giant

grain of salt, because these reporters are usually just that, collecting

information, with no underlying understanding of the business they’re

reporting on. But, there are some interesting statistics revealed.

Bob Lefsetz, Santa Monica-based industry legend, is the author of the e-mail newsletter, "The Lefsetz Letter". Famous for being beholden to no one, and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself.

His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to music business honchos like Michael Rapino, Randy Phillips, Don Ienner, Cliff Burnstein, Irving Azoff and Tom Freston.

Never boring, always entertaining, Mr. Lefsetz's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels.

Bob has been a weekly contributor to CelebrityAccess and Encore since 2001, and we plan many more years of partnership with him. While we here at CelebrityAccess and Encore do not necessarily agree with all of Bob's opinions, we are proud to help share them with you.

"WMG’s digital sales were up 11% last quarter, with digital music

making up 30% of its revenues worldwide and 47% in the United States.

(Sources say that at Atlantic, digital music approaches 60%.) Overall revenue

is steady at more than $3 billion annually and margins are up. In comparison,

Universal Music’s revenue last quarter dropped 13% and digital music sales

dipped 2%."

How Warner Music and Its Musicians Are Combating

Declining Album Sales

In other words, Warner is focusing on the future and Universal, the so-called

behemoth, is living in the dark ages.

Lucian Grainge can’t arrive soon enough. Vevo is the last hurrah of Doug

Morris? If Vevo is a victory lap, bring back Tiffany and Boyz II Men.

Now there are a couple of mainstream reporters who follow the music business

on a regular basis and do get it right. One is Ethan Smith of the "Wall

Street Journal". Today Mr. Smith reports that Warner Music, a Vevo hold-out,

just made a deal with MTV to sell ads for its videos.

"Warner Music Taps MTV to Handle Online

Ads With Its Videos"

Let’s start with infrastructure. Vevo has forty ad salespeople and MTV has

150 selling online ads. Furthermore, MTV promised to put Warner videos at

the head of the class, giving them preferential treatment at its outlets.

Sure, the devil is in the details, but it appears that Warner’s the winner

here. Edgar and Lyor’s company has OUTSOURCED the function as opposed to

building in-house infrastructure. Vevo, should be making money now! This

isn’t artist development, sites live and die essentially overnight online.

Something is wrong with Vevo, it’s top-heavy or there’s just not enough money

in online video or…

But it goes deeper. The music industry has been run by Universal, a giant

that controls the new neutered RIAA and bullies its compatriots. And you’ve

got the moribund Sony throwing in, (sure, they got lucky with Susan Boyle,

but beneath the surface, there’s almost nothing there, fire everybody and put

Barry Weiss in charge and give it a go, then again, Weiss is clueless when it

comes to digital) and the supposed forward-thinkers at EMI making a deal too.

And you wonder why the major labels are in trouble. They missed file-

trading, they’re going to end up with a cloud-based track system which brings

in less revenue than a cheap subscription scheme, and they’re still peddling

overpriced CDs and trying to crack down on ISPs.

Finland just declared broadband access "a legal right"

Finland makes broadband a ‘legal right’
and you’ve got wankers at Universal lobbying to cut off traders’ access.

Tell me how you’re going to win this one? I can’t have Internet access

because the copyright bullies are mad at me! Huh? Let’s see how the Supreme

Court comes down on this. Meanwhile, you’ll never get legislation, or it

will take years, longer than it does for Vevo to be profitable, to enact a

law and meanwhile you’ll have missed the future.

The future is now.

At least Warner realizes this.