Vevo's looking to step out of YouTube's shadow

From atop Vevo’s $500 million business, Huggers is gunning for YouTube’s much larger music video audience
Image: Jamel Toppin for Forbes

For Erik Huggers the giant signs outside his office building are a grating reminder of what he’s up against. The Market Street tower in San Francisco advertises its other illustrious tenants, Uber and Square. But Vevo doesn’t rate a mention. Huggers believes Vevo deserves a spot among the marque names of the digital era. After all, its music videos are watched by millions every day. But the Vevo brand languishes in obscurity. And as CEO, Huggers is on a mission to transform his company from YouTube’s underappreciated business partner into a top streaming platform in its own right.

Vevo, the majority of which is owned by Universal Music Group and Sony Music Entertainment, two of the ‘big three’ music labels, is trying to do for the mobile era what MTV did for TV: Be the premium destination for music videos from popular and up-and-coming artists. Already, many of the videos it distributes—on Vevo-branded channels on YouTube and also on Vevo.com—are among the most popular anywhere. ‘Hello’, by Adele, for example, has been viewed 1.7 billion times on YouTube, making it the sixth-most-watched video ever on that site.

And that’s precisely the challenge. Most viewing of Vevo clips takes place on YouTube, not on Vevo.com or the company’s mobile app. Huggers wants to change that.

But stepping out of YouTube’s shadow will be challenging. Vevo was born in 2009 out of the tense negotiations between Google-owned YouTube and the music labels, which were unhappy with the dollars they were getting from YouTube. The labels pressured Google into a new deal: The two sides would create Vevo as both a standalone site and a provider of artist-specific channels on YouTube. “The record labels said, ‘Let us launch Vevo, or else’, ” says Mark Mulligan, an analyst at MIDiA Research. Google and Abu Dhabi Media ended up with minority stakes.

The alliance has been fruitful. Huggers tells Forbes that Vevo anticipates $500 million in revenue this year, much of it from its ad-revenue-sharing deal with YouTube.(That’s roughly half of Pandora’s 2015 revenue and about a quarter of Spotify’s.) An average of 25 million people watch a Vevo video each day on its own site or on YouTube.

Huggers, a 43-year-old with a lanky build and Bradley Cooper hair, was brought on as CEO in April 2015 to push the business further. By shifting even a fraction of the YouTube audience onto its own site and app, Vevo could collect far more ad revenue, given that YouTube keeps a large portion—neither side will say exactly how much—of what it makes from clips played on its site.

Working with more than 325 employees in New York City, San Francisco and other cities, Huggers has made strides. In July, Vevo released a slick redesign of its website and app aimed at luring YouTube viewers. Now when you open Vevo on your computer or phone, a video launches immediately, an experience much like radio, where music is playing when you turn it on. As with many streaming services, you can create your own playlists or follow those of others and see suggestions for artists you might like. Huggers says the Vevo app is a place where people can find the best music and won’t “stumble upon videos about how to feed a giraffe,” as they might on YouTube.

Huggers scored a coup in August when Warner Music Group, the other big-three label, finally agreed to distribute its content through Vevo, plugging a major hole in its catalogue. (Warner still has a separate distribution deal with YouTube.)

Vevo’s cry for attention is well-timed. Spending on digital video advertising is projected to reach $10.3 billion this year, according to eMarketer, with 43 percent of that going to mobile. By 2019, it could reach $16.3 billion.

But YouTube is not about to cede its music fans to anyone. It launched its own dedicated app, YouTube Music, in November 2015. This summer, around the time of the Vevo redesign, it launched a national marketing campaign to promote it. In September, YouTube hired Lyor Cohen, a former Warner exec and founder of 300 Entertainment, for a new role called global head of music. Part of his job will be to mend YouTube’s fraught relationship with major artists, some of whom argue the company pays them too little for their content. In a letter to his new crew, Cohen said he looked forward to “helping the music community embrace technological shifts, so we can help take the confusion and distrust out of the equation.”

Despite the open rivalry for eyeballs and ad dollars, Vevo and Google insist the relationship is cordial. “In any relationship there are ups and downs, but it’s been mutually beneficial,” Huggers says. Google is similarly neutral: “We work hand in hand with them to support artists in making connections with fans around the world,” a spokesperson says.

As he seeks to make his mark, Huggers faces yet another challenge. While music-streaming companies like Spotify have experimented with adding videos to their services, no company based specifically on music videos has yet taken off. “I don’t think anyone has figured out a competitive model based purely on music videos,” says Woody Marshall, a Spotify investor and board member.

Huggers believes Vevo can beat the odds with its recent redesign and an upcoming subscription service. The company plans to start out with a free tier and then phase in a premium service. But it, too, faces long odds. YouTube’s own subscription service, YouTube Red, allows fans to “use the music app to listen to music videos offline and uninterrupted by ads,” a spokesman says.

None of that will stop Vevo from forging ahead. Its subscription service is likely to launch in the first half of next year. “We’ll ship it when it’s ready,” Huggers says. For Vevo, the bigger question may not be when it will be ready but whether anyone will care.