SAN FRANCISCO – Warner Music Group Corp. (WMG) has agreed to distribute and license its copyrighted songs and other material through online video trendsetter YouTube Inc., marking another significant step in the entertainment industry's migration to the Internet.
Under a revenue-sharing deal announced Monday, New York-based Warner Music has agreed to transfer thousands of its music videos and interviews to YouTube, a San Mateo, Calif.-based startup that has become a cultural touchstone since two 20-something friends launched the company in a Silicon Valley garage 19 months ago.
Perhaps even more important for YouTube is that Warner Music has agreed to license its songs to the millions of ordinary people who upload their homemade videos to the Web site.
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"We are very excited," YouTube co-founder and CEO Chad Hurley said in a phone interview Sunday. "This is a real landmark for our company."
Warner Music ranks as the country's third largest recording company with annual revenue of $3.5 billion.
Besides its namesake label, the Warner Music family includes Atlantic, Asylum, Elektra and Rhino — a group that includes vintage recording artists like Led Zeppelin, the Doors and Ray Charles, as well recent hit makers like Linkin Park, Green Day and Faith Hill.
Privately held YouTube is hoping the Warner Music deal will serve as a springboard for similar alliances with other long-established media outlets looking to connect with the Web site's audience, which watches more than 100 million videos per day.
"Technology is changing entertainment, and Warner Music is embracing that innovation," said Warner Music Chairman Edgar Bronfman Jr. "Consumer-empowering destinations like YouTube have created a two-way dialogue that will transform entertainment and media forever."
Many of YouTube's most widely watched videos already include copyrighted music, raising the specter of a legal showdown with record labels and artists seeking to protect their right to be paid for the material.
Universal Music Group CEO Doug Morris signaled the industry's exasperation with YouTube just a few days ago when he indicated the world's largest record label is prepared to sue the site unless it does a better job of preventing copyright violations.
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Other labels, though, have recently been experimenting with releasing some of their commercial videos on YouTube. Capitol Records recently posted videos by The Vines, Cherish and OK Go on YouTube.
On the television front, NBC has been using YouTube to promote its fall programming under a partnership announced in June.
Even as rampant copyright violations have popped up on the site, Hurley and his partner Steve Chen have insisted that they want to work with music, movie and television executives to help them take advantage of a new distribution channel as YouTube tries to translates its popularity into profits.
YouTube so far has been subsisting on $11.5 million in venture capital, spurring predictions that the company either will have to raise more money or sell out to a deep-pocketed buyer as it tries to fend off increasing competition from Internet powers Google Inc. (GOOG) and Yahoo Inc. (YHOO)
In Sunday's interview, Hurley reiterated YouTube's intention to remain independent — a goal that may be even more realistic if the Warner Music deal pays off.
The financial terms of YouTube's arrangement with Warner Music weren't disclosed.
Both companies are betting they will be able to make money from the ads that will show up alongside Warner Music's own videos as well as amateur videos featuring copyrighted material.
To make the deal happen, YouTube developed a royalty-tracking system that will detect when homemade videos are using copyrighted material.
YouTube says the technology will enable Warner Music to review the video and decide whether it wants to approve or reject it.