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Cable Technology Feature Article

July 05, 2013

YouTube's VEVO Investment Critical to Business Model

By Tara Seals, TMCnet Contributor

YouTube (News - Alert) has confirmed that it will take between a $40 and $50 million investment stake in one of its top partners, the music video channel Vevo, according to a report by Variety. The move shores up a critical — and symbiotic — relationship for the online streaming giant.

The deal, first reported by Bloomberg in February, would give Google (News - Alert) about a 7 percent stake in Vevo, suggesting a valuation of $500 million+ for the site, which is a joint venture between Universal Music and Sony Music Entertainment founded in 2009 to showcase their labels’ artists. Vevo runs a channel on YouTube as part of Google’s original online video content initiative, which it kicked off in October 2011.

"We made an investment in Vevo," YouTube said in a statement. "We are excited by their future prospects and to provide YouTube users with the best possible music experience."

Vevo is planning to use the money to expand globally, and said that it will invest in creating original music-related content to dovetail with official music videos from Sony and Universal.

Terms of the deal were not officially disclosed.

The deal is more than a simple investment in online video. Vevo's previous contract with YouTube ended in April and the channel has been operating under an extension; the stake will keep Vevo music videos on YouTube, which is important for both companies. comScore found that Vevo is the number four online video property in the US behind Google/YouTube and Facebook (News - Alert), drawing 52 million unique US viewers in May. But, Vevo is also YouTube’s top channel partner, racking up 50.2 million viewers — far ahead of the next largest channel, Fullscreen, which turned in 36 million viewers in May. The Vevo channel also streamed the greatest number of videos in the month (56.1 million).

Google is not the only potential investor in VEVO. The New York Post for instance reported last year that Google and Facebook were vying over an equity stake in Vevo on a valuation of $1 billion.

This is also not the first time that Google has invested in one of its content partners. Last May it poured $30 million into Machinima, which runs a gaming video channel on YouTube. It is the fifth most popular channel on YouTube in terms of subscribers, but second in the number of videos streamed (503 million).

YouTube has made it clear that it is willing to invest in content. Last autumn it announced a big expansion in its original content push since reaching its initial goal of offering 100 channels. YouTube committed to launching 60 new nets, including international feeds from France, Germany and the United Kingdom, across a range of areas including local cuisine, health and wellness, parenting, sports, music, comedy, animation and news.

It also said it was investing another $200 million to expand the program and help market existing channels.

“A lot has happened since we announced nearly 100 new original channels coming to YouTube: seven-year-old Ruby taught Amy Poehler about feminism. Rainn Wilson interviewed Deepak Chopra in the back of a mysterious van, and Phil DeFranco’s SourceFed became one of the hottest comedy news shows on the Web or TV,” said Robert Kyncl, vice president and global head of content, in a blog post. “What do all these moments have in common? They’re being created for you on YouTube.”

Edited by Ashley Caputo

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