What A Facebook Deal With Vevo Could Unleash

Facebook is lagging in the video-streaming race, with YouTube (NSDQ: GOOG), Netflix (NSDQ: NFLX), Yahoo (NSDQ: YHOO), Amazon (NSDQ: AMZN) and Hulu all making major investments to acquire and develop original video content. But if Facebook can reach an exclusive deal with Vevo, the web’s largest aggregator of music videos and YouTube’s most-trafficked channel, that could change quickly.

As originally reported by CNET, Facebook is in preliminary talks with Vevo to ditch YouTube and move its music videos over to Facebook. The two companies would share ad revenue.

The talks are said to be very preliminary and to have occurred within the last two weeks. And as CNET noted, even if talks were to suddenly escalate, immediate action would be limited by the fact that contractual ties between Vevo and the Google-owned YouTube still have a year to go before they expire.

A Vevo representative would not comment on these talks; Facebook also did not respond to requests for comment.

Such a deal would help Facebook close the gap with the leaders in web video. According to comScore (NSDQ: SCOR), YouTube had an industry-leading 157.2 million viewers in December compared to only around 42 million for Facebook. Vevo’s channel accounted for over 53 million of YouTube’s viewers – about 34 percent of YouTube’s total. YouTube’s top-viewed videos of all time were all supplied by Vevo.

To a degree, Facebook already collaborates with two-year-old Vevo, which supports seven of the top 10 musicians’ Facebook pages, including Rihanna, Katy Perry, Michael Jackson and Shakira. “If it (the deal) happens, it could be a way for Facebook to build huge amounts of traffic very quickly,” noted BTIG Research analyst Richard Greenfield to paidContent. “People like watching and sharing music videos.”

For Vevo, Greenfield said, the deal would be about economics: “Presumably, the split would be better,” he noted. “And theoretically, Facebook knows a lot more about their end users, and they could monetize at a higher level.”

Facebook’s upcoming initial public offering is also pushing it to beef up its video offerings. A better video portal would give Facebook another way of keeping its 800 million users worldwide on its platform for longer; that was also the objective behind Twitter’s purchase of news summary site Summify earlier this week.

Facebook has made a number of moves recently to increase its stickiness with music. In September, it launched Facebook Music, which lets users share information about their music likes and dislikes with their friends. And just last week, it added a “Listen With” button that lets users listen along with their friends in real time to music provided by Spotify, MOG and Rdio.

Of course, users have to have a subscription to these music services to enjoy that offering. Having access to Vevo would allow Facebook to provide music and video to its users for free.

For its part, moving away from Google might also lesson roadblocks for Vevo in terms of negotiating deals with the record labels. The launch of Google Music was delayed several times last year in the run-up to its November debut by disagreements with the labels, and it still doesn’t have a licensing agreement in place with the third largest record company, Warner Music Group (NYSE: WMG). Vevo doesn’t either; it has deals in place with Universal Music Group, Sony (NYSE: SNE) Music Entertainment and EMI Music, but not Warner.

If nothing else, talks with Facebook could be used as leverage for the fast-growing music service in its renewal discussions Google. Beyond its YouTube arrangement, Vevo recently made a deal with Viacom (NYSE: VIA) to syndicate its videos to the conglomerate’s various MTV-branded online platforms starting sometime in the first quarter. The company is also about to embark on a re-launch, and it’s currently in 22 countries with distribution in six more on the way.

If Vevo were to walk away from YouTube, that would obviously leave a rather large programming chasm for the video portal. “I don’t know how they’d fill that,” Greenfield said.