This article, published July 11th, 2012 in Digital Music News takes us back to the continuous struggle of Universal Music Group both in the US and across the Atlantic to get a piece of EMI. The article is based on confidential sources discussing on the possibility of UMG ‘actively reconsidering’ its major investment stake in VEVO. UMG currently owns VEVO alongside Sony Music Entertainment and Abu Dhabi Media.
According to the sources, there are two main reasons why UMG is reconsidering its stake in VEVO. Firstly is the fact that UMG could be possibly considering VEVO operations as “non-core’ operations. The company seems to have other priority at the moment especially as former Chairman Doug Morris who came up with the concept is now with Sony. Secondly is the need for cash. According to the sources in the article, UMG needs all the cash it can lay its hands on to finalize the acquisitions of EMI. This acquisition has been a major project in the UMG strategy and with the high demands from the deal regulators, UMG’s Chairman, Lucian Grainge will need all the assets he can get.
What does this mean to me? I do not think UMG will be parting from its VEVO stake any time soon after its recent deal with independent artists to offer them a percentage of add revenue generated from YouTube. Without any firsthand knowledge of VEVO operational costs, I personally do not think the savings UMG will make from selling its stake will make a significant dent in the pool of funds needed to acquire EMI. That said, losing control of VEVO will mean a significant future loss for UMG in the monetization of music videos. Considering that VEVO is the premier site for premium music videos.
This move could play favorably in UMG’s favor. By focusing on the acquisition of EMI and parting with VEVO, UMG could equally stage an even bigger come back in a few years to come when they will be controlling more than 50% of the industry’s content and publishing rights. That is if UMG succeeds to acquire EMI. With an even bigger music catalogue, roster of artists and extensive archives of music videos, UMG could introduce an even better version of VEVO consistent with the technology at that time. As known in the industry, the problem is not in creating the technology but convincing the users it is better and more convenient than the previous. If UMG decides to go this route, they will have a tough time winning VEVO consumers. I do not expect Sony Music Entertainment and Abu Dhabi Media to fold their hands and not seek other partnerships if UMG steps out.
By Gerard Ngwang