Your Other Tube

Music video's ongoing transformation from promotional money loser to commercial money maker took another step forward with Google's recent acquisition of YouTube for $1.6 billion. Ahead of the deal, Universal Music Group (UMG), Sony BMG and Warner Music Group (WMG) had reportedly acquired small minority stakes in the viral video site in exchange for content licenses. But online is not the only opportunity labels have to cash in on people watching music videos on-demand.

Digital cable subscribers are viewing music videos on-demand through their TVs in increasing numbers.

Horsham, Pa.-based cable network Music Choice says its viewers have placed more than 500 million orders for on-demand music videos since November 2004.

The advertising-supported service from Music Choice now claims more than 8 million music video orders a week from an installed base of 14 million homes. (Music Choice's basic audio-only programming is carried in more than 30 million homes across all major digital cable operators, but its video-on-demand service is thus far only carried by Comcast systemwide and by Cox in 11 markets.)

Most of that VOD consumption is coming from a catalog of more than 7,000 music videos. But the channel also claims that original programming for VOD like its "Artist of the Month" interview and performance segment—featuring such acts as Christina Aguilera, Beyoncé and My Chemical Romance—is generating anywhere from 2 million to 4 million views per month.

Those numbers may not seem like much compared with Yahoo or YouTube. Yahoo averages more than 350 million music videos streams per month. YouTube delivers more than 21 million VOD streams per day (of which music is a leading subset), and more than 600 million streams per month in the United States, according to research firm comScore Media Metrix.

But growing interest in music VOD content from set-top box users signals new opportunities for TV and online video services as consuming Internet programming through the TV becomes increasingly easy.

"There is a lot of competition out there online, but consumers would prefer to watch this stuff on TV," says Damon Williams, senior VP of programming for Music Choice.

To be sure, Music Choice isn't alone in targeting the market. MTV, Fuse, AOL and others also have developed VOD platforms that are carried by select digital cable operators.

However, unlike Music Choice, many of those services were initially conceived as experimental promotional vehicles, not revenue centers. And they are attracting viewers more in the hundreds of thousands than millions.

But as labels have stepped up their calls for compensation for access to video catalogs, previously promotion-oriented VOD channels have moved to adopt ad-supported models.

Music Choice claims it can charge higher rates for advertising associated with its on-demand content than Internet programmers because it attracts more traditional TV ad-dollars.

But TV-based VOD operators and labels in many cases are still trying to come to a consensus as to whether wholesale rates should be more expensive for TV than for the Web.

"We see more similarities than differences between the two platforms," says Fred McIntyre, VP for AOL Video.

As a result, virtually every TV-based VOD service has only a partial collection of major label music videos.

Music Choice has formal deals with WMG, EMI and leading indie labels, but not Sony BMG or UMG.

AOL claims deals with Sony BMG and WMG.

Licensing of music video content remains a contentious issue across the VOD space, whether it's for TV or online.

UMG, which recently had YouTube in its crosshairs, filed suit against viral video sites Grouper and Bolt for enabling the unlicensed distribution of its content.

Meanwhile, press reports have indicated that Viacom, whose MTV unit is facing competitors from all sides, and other broadcasters are still considering suing YouTube for allowing its users to upload unlicensed clips of its programming.

By contrast, WMG inked a deal with Muvee, a service that allows users to mix their own personal pictures and videos into artist videos.

Those aren't primary concerns for TV-based VOD players—yet. But with convergence between TV and the Web quickly developing, Williams says all players in the space have to be thinking about both platforms, as well as mobile.

"The pace at which things are happening in video is incredibly rapid, it's 'game on' right now," McIntyre adds. "Your strategy has to have a concept of how you are going to play in all these different areas."