Posted by Mark Mulligan on March 5, 2009
[Posted by Mark Mulligan]
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YouTube are reportedly close to signing a deal with
Universal Music Group (UMG). The reports
are still unconfirmed and details are thin on the ground, though a standalone
microsite called Vevo is rumoured. I’ll hold off from further speculation until details are confirmed, but
what is worth looking at now, is why these sorts of deals are happening at this
point in time.
UMG is pursuing a number of direct-to-consumer strategies
(e.g. Lost Sounds) and lots of first mover deals with new distribution partners
(e.g. Nokia’s Comes With Music, BSkyB). This is all part of a strategy of expanding its role in the value chain
(a topic I recently addressed more broadly in this post). UMG is navigating a path
through the recession, understanding that discretionary consumer spending on media
such as CDs is much more vulnerable than utilities and subscriptions. So they are focused on increasing margins and
exploiting new revenue streams to offset the decline in core revenues.
But UMG’s recession didn’t start in colder months of 2008. UMG and all other record labels have been in
recession since near the start of the century. They may have been a little slow to react
initially, but they are now keenly aware of the scale of the problem and are
responding vigorously with innovation, none more so than UMG.
During the music industry’s recession, media consumption has
changed beyond recognition. Consumers
spend more time with more media than ever before. They spend more time online, on mobile, on TV,
on console etc. They spend more money on
media than ever before but less on music. Households have more monthly outgoings than at
the start of the period: pay TV, multiple mobile phones, broadband etc. These items are much more difficult for consumers to cut back on than the occasional CD or DVD purchase, even though they are a much bigger financial drain on the consumer.
It’s no coincidence that UMG is actively licensing to
subscription based services (e.g. Sky) and ad supported offerings (e.g. imeem, YouTube).
Those are the two key ways of developing
new revenue in this new recession impacted media world. And by entering into partnerships rather than
just licensing, UMG are doubling their odds of a profitable return on their
Being a media company in the 21st century was
already becoming an increasingly complex affair. The recession is compounding that, and staying
still will ultimately equate to failure. Media companies across all genres would do
well to take a few lessons out of UMG’s book.