YouTube has been phenomenally popular on the Internet since its inception, but no one believed that it had a profitable business model. Universal Music is poised to rake in as much as $100 million this year through partnerships with YouTube and other online video sites.

Rio Caraeff, Head of Universal Music’s Digital Group says “It’s a revenue stream, a commercial business. It’s growing tremendously. It’s up almost 80 percent for us year-over-year in the U.S. in terms of our revenue from this category.”

The $100 million figure includes revenue from other digital video partners such as iMeem, MTV, and MySpace. The lion’s share of the traffic and revenue are through the company’s deal with YouTube.

Universal Music’s channel on the online video site has received over 3 billion views. The companies make money by splitting the revenue from ads placed on pages containing Universal’s music.

In addition to monetizing Universal’s channel, YouTube also detects music videos uploaded by other users that Universal owns the rights to. YouTube has increased the revenue stream for both companies by improving the fingerprinting method used to detect these videos.

It has been an uphill battle for YouTube to make money off of its videos and to build credibility with the record labels. By splitting the ad revenue on pages with the labels’ videos, both companies profit from better detection of videos that infringe on Universal’s copyright.

In addition, YouTube has been experimenting with ways to increase ad revenue without detracting too much from the video experience. In recent months, the site has added post-roll video ads to the featured pages in the interest of increasing its revenue per video view.

Universal Music has been leading the charge among music companies in partnering with YouTube. Once thought to be a cesspool of careless infringement, the site could build a new model for music companies looking to offset the slimmer margins of digital music sales.

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Entry was posted on Friday, December 19th, 2008 at 9:38 am under Music, Online video, YouTube.

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