Vevo seeks to lower revenues shared as its seeks a path towards profitability

The rumours of Vevo’s search for a buyer have been making the rounds for a few months.

Now Re/code reports that the company is undergoing a process of restructuring to make the company more appealing.

The video streaming service has so far run at a loss, which was fine to a point because two of its main investors, Universal Music Group and Sony Music Entertainment, were getting a large share of its $250m in revenues (2013 figures) and so were probably more than happy to keep funding it.

The problem is that in order for Vevo to work as a stand-alone entity it needs to drastically decrease the percentage of gross revenues paid to labels, Google and publishers, which now is over 90%. This figure makes the service completely unsustainable in the long run as it is unable to even pay for its staff or offices before incurring a loss.

Since Google is unlikely to lower its rates and publishers are already getting the short end of the stick, it looks like it would be labels who would need to accept a lower revenue share.

The question mark is whether they will be willing to accept taking a lower percentage of in order to safeguard the existence of the service.

The issue is further complicated by the fact that while Universal and Sony may be willing to accept less favourable terms because they stand to make a lot of money from a potential sale, labels who do not have an equity stake in Vevo but are distributing their videos through the platform may not be so readily willing to accept a lower payout.

The other Achille’s heel of Vevo is its dependence on YouTube, as the majority of its views are still driven from this symbiotic but awkward relationship with the video distribution giant.

Goldman Sachs, who is reportedly leading the search for a buyer or a new lead investor, has its work cut out for itself reshaping Vevo’s financials by balancing the company’s needs with the labels’ requirements.


(Andrea Leonelli)