Someone Forgot To Tell Warner YouTube Has The Upper Hand; WMG Videos Are Off Google Site’s Grid

imageAbout those plans YouTube has to show the music labels who has the upper hand, think of it like a poker game: when you’re not the only game in town, it makes it easier for players to walk away from the table. Conversely, when you think your game is the only game in town that matters, you’re not going to fold just keep them playing. That’s why when a YouTube user tries to watch My Chemical Romance’s Teenagers today, the legit versions might not be available. (Some video is still up.) Ditto for user-gen content. That goes for all of the content once licensed by Warner Music Group (NYSE: WMG) to YouTube. WMG was the first major in when the site needed legitimacy with the music industry and Warner wanted to show it was adapting to digital; the labels got small stakes in the start-up. YouTube’s music deals helped its founders achieve that $1.65 billion price from Google (NSDQ: GOOG) Now that actually making money is the bigger issue, WMG is the first of the major labels to pull out following the failure to come to terms on a new version. (It’s unclear whether the deal expired.) I’m told it was WMG’s decision to leave; Peter Kafka was told by a source that it was Google’s decision. Maybe it’s just MAD — mutually assured destruction.

Lots more after the jump

YouTube drew first blood on its company blog, listing its many efforts to accommodate the music industry: “despite our constant efforts, it isn’t always possible to maintain these innovative agreements. Sometimes, if we can’t reach acceptable business terms, we must part ways with successful partners. For example, you may notice videos that contain music owned by Warner Music Group being blocked from the site. Don’t worry – if you receive a takedown notification, you will have a couple of options to choose from in order to keep your original video creations up. Check out Audioswap, a one-of-a-kind library of pre-cleared music ready for you to drop into your videos any time.”

WMG’s statement: “We are working actively to find a resolution with YouTube that would enable the return of our artists’ content to the site. Until then, we simply cannot accept terms that fail to appropriately and fairly compensate recording artists, songwriters, labels and publishers for the value they provide.”

Both sides think they have the winning hand. YouTube has a massive audience that won’t take kindly to takedown notices and lack of access. WMG’s music video is widely available through MySpace Music (it holds equity in the News Corp (NYSE: NWS) JV), Hulu, etc., as is licensing for user-generated content. Fans will have to go elsewhere while WMG resumes takedown whack-a-mole at YouTube, at least, that’s what WMG is counting on. It all conjures visions of NBC Universal’s decision to walk away from Apple (NSDQ: AAPL) and iTunes last year. Whatever you think of the strategy and whether the resolution was a win for NBCU, it’s the kind of move someone can afford to take when the pot is small. Will the others follow?

LAT: “Under terms of YouTube’s contracts, the labels stand to collect either a minimum fee of less than a penny each time a music video is watched or a split of advertising revenue, whichever sum is greater.”

Pictured: Wanrer Bros. Records’ My Chemical Romance

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