Summary:

Vevo and MTV Networks (NYSE: VIA) are having difficulty coming to an agreement over whether Vevo can sell advertising around the Viacom netw…

Lady Gaga

Vevo and MTV Networks (NYSE: VIA) are having difficulty coming to an agreement over whether Vevo can sell advertising around the Viacom network’s online music player, according to interviews with sources in both camps. As a result, UMG, one of the founding partners of Vevo, has pulled its artists’ videos from MTVN’s sites as Vevo continues to try to work out an agreement on behalf of it and the other labels it represents. For the moment, both sides appear far apart. Aside from the issue over ads, there is intense competition to be the number one music site.

It’s important to note that while the UMG artists’ videos will not be shown on MTV’s music sites, the deal does not apply to the cable broadcasts or to mobile. The reason is that Vevo only handles online and not TV or mobile video (as of yet, at least.)

In interviews with all sides, there was a fair amount of he said/she said.

For UMG, whose artists include Lady Gaga, Justin Bieber and Eminem, the issue is simple: It handles online syndication for the labels and that includes ad sales. When Vevo was formed by UMG, along with Sony (NYSE: SNE) Music and Abu Dhabi Media Corp, in December, the labels agreed that online distribution for their music videos would be negotiated by the joint venture. The labels would not handle these distribution deals once the licensing had expired. These licensing deals generally last about six months, though some, like MTVN’s, lasted for a year. Once MTVN’s license to carry UMG videos on its site expired, the network had to go to Vevo to negotiate a new deal.

Because Vevo’s online syndication agreements cover ad sales, there were naturally a few sticking points, since MTV is used to owning that space itself. Sources close to Vevo say that the company has signed syndication deals with AOL (NYSE: AOL), CBS (NYSE: CBS), Univision and, shortly, Yahoo (NSDQ: YHOO), to run ads around those sites music video players. These sources say MTV was presented with the same syndication contract and it balked.

Sources close to MTVN say that Vevo wanted a little too much control over the banner ad space around its player. These sources say that MTVN was concerned that Vevo would be able to go to advertisers and claim that they were in charge of running ads on the site.

Both sides say that compromises have been floated and rejected, at least so far. The MTV side was willing to make the banner on top of the music player page off-limits to advertisers, offering to use the space for house ads. The UMG/Vevo side says that they offered to share ad revenue on the space. But neither so far has been willing to budge. (However, MTV.com does have some UMG videos on its site for its Video Music Awards voting, which is also a sore point between the two.)

Other sources suggest that UMG and Vevo were worried about MTVN’s recent multi-year ad sales and digital content agreement with Warner Music Group (NYSE: WMG), which is a very notable holdout when it comes to offering its artists

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