YouTube signs Digital Music Group to distribution deal

Clint Swett
McClatchy Newspapers

SACRAMENTO, Calif. - Scoring a deal with one of the hottest companies in online entertainment, Sacramento-based Digital Music Group Inc. said Monday it will distribute its videos and some music through YouTube Inc., the video-sharing site owned by Google Inc.

Financial terms were not disclosed, but the deal calls for YouTube to post more than 4,000 hours of television and video content either owned or licensed by DMG.

In return, DMG will receive revenue from ads that YouTube will sell on Web pages where DMG's videos are viewed. The ads could appear on the side of the page or as a lead-in to the video itself.

In addition, DMG will make available about 40,000 music cuts - primarily oldies - for use as soundtracks by those creating their own YouTube videos.

YouTube will pay DMG an undisclosed fee whenever DMG tunes are used in a YouTube video.

Mitchell Koulouris, DMG's founder and chief executive, said the deal was one of the most important his company has forged since it went public a year ago. "We are among the first to do this kind of deal with them," Koulouris said of YouTube. "On a scale of one to 10, I'd rate this a 10."

YouTube officials could not be reached for comment.

The agreement benefits both companies, experts say.

For DMG, it raises the company's profile while bringing in additional revenue. Indeed, investors seemed to approve, bidding DMG stock up $1.29 to close at $5.04 Monday on the Nasdaq.

"As long as DMG has content that people want, they have to find different ways to monetize it," said Mike McGuire, an analyst with Gartner Inc. in San Jose. "YouTube, for the moment, is gold-plated. This certainly will help DMG."

YouTube benefits by obtaining videos and TV shows without violating the restrictions that have bedeviled the company.

Earlier this month, for instance, Viacom Inc. ordered YouTube to yank more than 100,000 unauthorized clips that users had uploaded to their Web site.

In addition, the availability of DMG-controlled shows from decades past - like "Peter Gunn," and "I Spy" - could lure an older demographic to the young-skewing YouTube audience, said industry analyst Phil Leigh.

"The audience that (older shows) attract will have a lot of gray hair," said Leigh, of Inside Digital Media in Tampa, Fla. "When YouTube wants to reach that audience, Digital Music Group will be right there with them."

While DMG traditionally has focused on acquiring the digital distribution rights to music, it has become more aggressive in finding outlets for its catalog of old TV shows and videos. It recently announced deals to distribute its videos to download sites like Apple Inc.'s iTunes store, Movielink and Bittorrent.

Koulouris declined to predict how important videos ultimately will be for DMG, which has yet to turn a profit.

"We don't expect significant revenue from video until the second half of 2007," he said.

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