YouTube and Universal Team Up on Music Site

Google’s YouTube and Universal Music Group, the world’s largest music company, said on Thursday they will launch a premium music video Web site as they bid to increase revenue from YouTube’s huge usage.

The new advertiser-supported site, featuring professional videos, will be called Vevo and is expected to launch in coming months, the companies said.

The deal is a boost for YouTube, which has been under increasing pressure from music labels and publishers who are frustrated that the popular site has been unable to pay higher fees for rights to use their music and videos.

Talks broke down late last year between YouTube and the No.3 music company Warner Music Group. Last month YouTube was forced to block all music videos in the UK and last week it had to do the same in Germany in a similar dispute with song publishers over money.

Vevo is an attempt to address this disparity between YouTube’s popularity, it has 100 million users in the U.S. alone according to comScore, and its relatively low advertising rate or CPMs (cost per thousand page views) as it is called.

The new site will be a music video hub wholly owned by Universal, a unit of French media group Vivendi.

It will feature higher-quality videos, as opposed to the typical grainy and often user-generated videos on YouTube.

The idea is for Vevo to attract big-name advertisers and other content-owner partners.

“The rationale is to help make Vevo a place that brands feel more comfortable,” said Rio Caraeff, executive vice president of Universal’s eLabs.

“Ultimately we think it will increase in effect the CPMs and drive more revenue to YouTube and more revenue to the music business than they can have today,” said Caraeff.

Building a premium site

YouTube and Universal Music will share advertising revenue generated by the site. Both sides are betting that building a premium site will help increase advertising rates. Many big brand owners have avoided advertising alongside YouTube’s ad hoc mix of user-generated videos.

David Eun, Google’s vice president of strategic partnerships, said the higher quality professional content would appeal to advertisers.

“As we continue to work more closely with advertisers and potential sponsors we have a good sense of the type of content that they’re attracted to,” said Eun.

Industry watchers will likely compare Vevo with Hulu, a high quality online video service jointly owned by NBC Universal and News Corp with about a third of the number of users of YouTube.

Hulu which features popular TV shows and some movies, has been more successful at selling advertising inventory to big brand owners than YouTube.

Vevo will also serve as a syndication platform called the Vevo Music Network which will power music videos on partner sites.

Universal Chief Executive Doug Morris is said to be in talks on bringing other music companies on board to give fans a comprehensive music site. Talks with EMI Group and Sony Music, which renewed its YouTube deal in February, will likely be more straightforward than talks with Warner Music. But Universal is hoping to have all four majors and others on board before launch.

“The feedback from the fan and advertiser is that ultimately they want all of the premium music content and not just Universal Music Group,” said Caraeff.

Caraeff declined to comment on whether the other music companies could negotiate for a stake in Vevo. The music companies jointly own stakes in other ventures including MySpace Music.

Plans for Vevo come in addition to the renewal and extension of YouTube’s existing recordings and publishing rights deal to feature video content from Universal artists such as U2, 50 Cent and Kanye West.