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Can Vevo Take YouTube’s Music Video Traffic and Make It Pay?

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Vevo, the UMG-Sony (s SNE) music video joint venture powered by YouTube (s GOOG), is setting itself up as the music industry’s great digital hope: a major advertising revenue stream. The site has a planned launch date of sometime in December, and by then could also include content from Warner Music Group on a nonexclusive basis. AdAge’s Michael Learmonth today gave us an update on the company’s progress.

New York-based Vevo has 45 employees, but AdAge gives no update on whether Vevo closed the $300 million in funding it was reportedly seeking. The team includes 20 engineers, which seems like quite a posse considering YouTube is providing the site with “bandwidth, streaming and core technology.” However, Vevo has to ingest an awful lot of content before it launches, and also enable its promised tools for users to make “playlists, mashups, download lyrics and make their own videos synced to the music.”

Our take is that Vevo’s existence is not a winning scenario for YouTube, since it takes the site’s single most-trafficked video category and moves it elsewhere. But at stake is the elusive “premium” experience Vevo will supposedly offer. Since it will only have label content, Learmonth reports Vevo is seeking $20-$40 CPMs (which are not unheard-of prices elsewhere, it should be said). The idea is for Vevo, like Hulu before it, to establish a “premium” venue away from the democratic free-for-all on YouTube. In return for losing all that content and traffic, YouTube gets to hold onto a stake in the digital music video biz and keep a share of Vevo’s revenue.

According to a recent study by TubeMogul, “the top five labels alone control 64.52 percent of all of the views of the YouTube’s top 50, and are the top five publishers of all time.” Are we just going to wake up one morning in December to find that all those music videos pages are dead? What about the existing mashups? Do we need to launch a campaign to save the Single Ladies dancing baby? However Vevo tackles it, handling the transition from what YouTube offers today will be a challenge.

Vevo CEO Rio Caraeff says his site is actually in consumers’ interests, and to his credit, he’s not just expecting people to show up in droves to passively watch Beyonce’s and Taylor Swift’s latest artistic creations and debate which was better. Visitors will get to play, modify and lip-sync music videos just as they do normally, only the experience will be sponsored and packaged in ads. “We don’t want to change people’s behavior,” Caraeff said. “It’s not about what’s best for the record company and maintaining an old business model; it’s about how do you create a model that flows with the physics of the web?” Yes, but it can’t possibly be that seamless; after all, the web currently doesn’t include Vevo.

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