Thursday, January 01, 2009

Un-Real Estate

Happy New Year to all!

Hey, I got some mail. Okay, not really mail, but over on the ‘Ville, a poster named budget added the following comment:

Would you please weigh in on this article: Music Industry Looks To Internet For Revival Particularly this quote: "Universal Music, the industry leader, has said that it makes “tens of millions of dollars” from YouTube." We're making 10k videos that end up making their labels millions of dollars! We're still getting screwed over!!!

Okay, here is me weighing in …

First of all, click on over to the Financial Times and read the brief article. While doing that, remember it is the FINANCIAL F^&%ING TIMES. Everything in that article is skewed towards investors and potential investors. If ‘High Times’ magazine covered the recent Presidential election (maybe they did, my subscription ran out) you can bet that HT focused on which candidate would make it easier for their readership to get high. Financial Times has just as skewed a world view. FT is all about telling investor/readers where they might (or might not) want to put their money. The info in that article is bound to be massaged, but doesn’t mean it ain’t useful.

The fact that Warner and Youtube/Google are beefing over the percentages means that there IS some money to be made from the ads that run over and alongside the videos. The “Music industry looks to internet for revival” headline at least seems reasonable. But how much money is really there?

This is where the waters will get murky. You gotta remember the recent financial collapse was preceded by lots and lots and lots of articles in FT and Wall Street Journal about how the markets and the economy and the mortgage universe was doing just peachy. The financial press is full of ridiculously upbeat projections and predictions that are not justified by real-world facts – these kind of publications are often more cheerleaders than news sources. (Note that I have taken down last year’s prediction that the shoot for the film ‘Vicky Christina Barcelona’ would turn into a Penelope Cruz – 30f – Scarlett Johansson sandwich. Sigh.)

Anyway – take any and all income predictions and earnings estimates with a Fat Joe-sized grain of salt. Here is the quote that perturbed mr. budget - “Universal Music, the industry leader, has said that it makes “tens of millions of dollars” from YouTube.” Now contrast that with “Hulu and YouTube would make about $70m and $100m respectively in US advertising revenues in 2008” from a little farther down in that same article. How do those things fit together? (Hint, they don't.)

Now, Uni is a big player, but if YouToogle as a whole is making $100million per year (and this estimate might be as cooked up as the financial health of AIG and Fannie Mae) then how could Universal possibly be getting that much? I am unsure what the sharing arrangement is, but if YouTube makes a hundred mil, the copyright owners probably don’t get an equal share – so the copyright owners of YouTube clips can’t be getting the ‘same’ $100 mil, can they?

Back to Universal. Uni’s supposed “tens of millions” means multiples of ten, right? So “tens of millions” means at least twenty in my book. That is 20% of YouTube’s (alleged) total revenue (and forgetting for now that the split is unlikely to be 50/50). I imagine Uni might earn 20% of the music video based revenue on YouToogle, but music videos are a fraction of all the content on YouTube. A popular fraction to be sure, but if YouToogle brings in $100m, much of that must come from wedding videos, skateboarding tips and dogs eating burritos, right?

This leads me to the conclusion that it is highly unlikely that Universal makes what they are saying off of YouTube videos. There are plenty of other claims in that article that can be parsed, but you get the point. Like fisherman, businessman make big, boastful claims. Especially if they are trying to convince shareholders that all is well.

Now, onto the most salient part of budget’s comment/question: “We're making 10k videos that end up making their labels millions of dollars! We're still getting screwed over!!!”

Yes, plenty of directors have budgets of $10k or less to make videos, and these do end up on the internet and they might be earning the record label some cash. But my guess would be that Britney, Jay-Z and their fellow megastars earn the majority of the online revenue for a label and plenty of the low-end jobs (let’s say the $10k range) attract way, way less viewers and thus less ad revenue. It is unlikely that Universal is earning their (fictional?) tens of millions off of the low-end jobs. Long tail and all that.

The real reason that MV budgets were big in the 90s was competition. To get played on MTV, a video had to beat out rival videos for limited air time. TRL and other prime spots on Viacom's cable-waves were prime real estate. As more and more videos got made, the labels had to spend more and more to attract the eye of MTV’s programmers and win those scarce slots. This led to the kind of budgetary arms race that brought us Puffy’s ‘Victory’ and O-Town’s ode to nocturnal emissions ‘Liquid Dreams.’

But, now, with the ‘air time’ on the ‘Net being limitless – why should a label pull out the budgetary big guns? A once scarce resource (exposure for the videos) has suddenly become free. The labels need to attract eyeballs, but the eyeballs they are after are now the end consumers and not a conference room full of people at 1515 Boadway, and winning that attention seems to be based more on having a hot song or a visual hook (i.e. synchronized treadmills) rather than massive post effects or stunts like the ‘big’ videos of old.

So, budget, does that help any? It doesn’t make that $10k budget stretch any farther, but hopefully you’ll see that the labels likely aren’t raking in the money off Youtube clicks for Shwayze. To be honest, $10k is probably an appropriate amount to spend on a music video if the label is hoping to get a few dollars back from YouTube advertising.

If we don’t like the budgets the labels offer, we can always turn the jobs down. Ha.

Anyway, I won’t turn down questions. Send me an email or drop a comment below.

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I agree with most of what you say, butI have to respectfully disagree here. Youtube's advertising revenue is a gamechanger. Now the labels have a new incentive to invest in a video that reaches 50 million views. We are talking about the same as it ever was: big pop acts that thrive on mass audience appeal. There has always been the random breakthrough act that creates a hit single from nowhere and shoots to the stratosphere, but usually for one track. Youtube didn't create this phenomenon, it just gave another avenue for the luck factor to work. However, big labels aren't good at this game - in fact no one is including those one hit wonders. Labels are supposed to cultivate acts that they can invest and exploit with as long of an extention of diminishing returns as possible. Promoting an infinite number of $10k videos hasn't worked for the labels over the last eight years. The payoffs are just too small to make a dent in their billion dollar empires. But a focused well financed promotion on their name brands has sold a lot of records. Britney. Beyonce. This is what the labels are good at. Spending money on their stars and getting 50 million views on youtube. Not acting like a collection of fractured sub-indie labels. Ad revenue is in its infancy, but it is a powerful step toward the rehabilitation of the big label music video industry. Give it some time.
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