A report by CNET has music video portal Vevo considering ditching its partnership with YouTube for Facebook, once Vevo’s current contract is up in a year. What could such a move mean to Google‘s (NASDAQ:GOOG) video sharing website? Plenty, but the real news is the potential win for Facebook.
Purchased by Google in 2006 for $1.65 billion, YouTube makes money by selling advertising. While Google is cagey about releasing exact numbers, analyst Mark Mahaney of Citigroup (NYSE:C) estimates that Google netted $876 million from the site in 2011, from gross revenue of $1.3 billion.
According to a report on digital destinations by Neilsen, YouTube was the web’s top destination for viewing video content in 2011, with an average of just under 146 million viewers per month. Of those, more than 35 million viewers were watching VEVO videos. At the same time, 29.3 million people were watching videos of some sort on Facebook. The math says that if those Vevo viewers moved to Facebook, the social media giant would find itself with over 64 million monthly video viewers, while YouTube’s current dominance would take a hit, dropping it to 111 million monthly viewers. If the ad revenue also migrated, some $268 million would theoretically be shifted from Google’s coffers to Facebook’s.
Also at stake are bragging rights for the top overall web brand. According to the same Neilsen survey, Google — which tracks YouTube visitors separately — is the top U.S. web brand, with an average of 153.4 million unique visitors every month. Facebook is in second place, at 137.6 million. Shift those Vevo visitors to Facebook (which doesn’t currently treat video viewing as a unique destination) and things get interesting: Google remains at 153.4 million visitors, but Facebook takes the lead with 172.6 million monthly visitors.
In reality, the issue really is one of semantics, at least as far as saying who is the Web’s number one website. When YouTube’s numbers (even a YouTube diminished by the loss of Vevo) are folded into Google’s, there’s no contest. Facebook is still a distant second.
A partnership between the Abu Dhabi Media Company, Universal Music Group and Sony Music Entertainment (NYSE:SNE), Vevo was launched in 2009, has service agreements with EMI Music and Viacom (NASDAQ:VIAB), and streams music through its own website, Vevo.com, as well as through YouTube and mobile apps.
What a VEVO purchase would really do for Facebook is to keep visitors on the site longer. Music is a notoriously “sticky” service, a reason to keep a website open in the background instead of surfing away. With Vevo in the fold, Facebook could offer more options for providing free music and music video offerings to its users – a strategy that could give users a reason to not only stay on the site, but also share and interact with their Facebook friends. While Facebook currently offers music sharing capability, that function is linked to subscription music services such as Spotify, which not everyone has access to. So an alliance that keeps people on the site longer would only increase Facebook’s value, something that’s increasingly important as its IPO approaches.
As of this writing, Brad Moon did not own a position in any of the stocks named here.
