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Giving Warner Music its due

February 25, 2008 | 10:43 am

Warner Music Group announced today that its head of digital strategy, Alejandro Zubillaga, is stepping down to (as he put it) "get back to my entrepreneurial roots." In other words, he's still mulling his next move. Warner took some grief four years ago when it named music-industry novice Zubillaga -- a former telecom exec in Venezuela and venture capitalist whose firm, Lexa Partners, was part of the group that took Warner private -- to lead the all-important work of developing new digital revenue streams. The appointment had a patina of nepotism, given that Zubillaga's brother-in-law, Edgar Bronfman Jr., led the Warner buyout and became the company's chairman. But his leadership led Warner to make what strikes me as the flagship deal for the entertainment industry going forward: a pioneering agreement with YouTube to share advertising revenue.

The deal shifted Warner from trying to stop unauthorized uses of its music and videos to profiting from them. It was a sea change in thinking, one that increased the potential return on everything Warner did to attract fans and curry their enthusiasm. For example, consider the relatively new video genre that features people re-enacting or re-imagining music videos. A creation of UGC sites, the genre has become an active category on YouTube. The licensing deal turned those videos into a potential revenue stream for Warner, assuming YouTube becomes the ad-selling powerhouse it should be. In other words, it let Warner stop the Sissyphian (or Viacom-esque) effort to control the use of its content, and focus instead on signing bands that attract fans who really care about them. Bravo.

Warner was notably slower to make the leap to DRM-free permanent downloads, and on the whole was in the middle of the industry pack when it came to digital innovation. But as the record companies try to develop advertiser-supported businesses to replace their conventional (and dwindling) pay-to-own approaches, Zubillaga's deal with YouTube should remind them to keep their eye on the revenue they can gain from the use of their works, not the control they give up in permitting fans to be fans.

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