If Caraeff succeeds, perhaps only diehard fans will need to own music. His online music video site, part-owned by the two largest record companies, also hopes to have the same impact as MTV and to be an answer to YouTube. Chuck those goals in with that of making the industry less dependent on the purchase of recordings, and for Caraeff there is clearly plenty to do.
Caraeff is the youthful chief executive of Vevo, launched in late 2009 with the backing of three of the four major groups, Sony Music, Universal Music and EMI. He is taking the venture international with a rollout starting in Britain and continental Europe.
“Sex, music and sports are the only entertainment categories on the planet that people love that can build audiences at the scale of billions of people. I’m in the business of connecting billions of people to music,” is his modestly stated aim.
“I believe the future is access, not ownership” … Rio Caraeff.
With global CD sales plummeting $US1.5 billion last year, Caraeff’s mission is clear.
“We wouldn’t have created Vevo if we didn’t need it,” he says. “The industry felt it was necessary. If MTV was doing a great job paying royalties, if YouTube [was], there would have been no need. We have invested tens of millions to be responsible for our own destiny. We can’t sit back and say, ‘I hope Apple or whoever figures this out.”‘
Vevo’s relationship with Google, the owner of the world’s largest video-sharing platform, YouTube, is clearly critical.
Former BBC chairman Michael Grade called the company a “parasite” and Sir Martin Sorrell, head of advertising giant WPP, described it as a “frenemy”.
Despite the combative relationship the music industry has historically had with players in the digital space, Caraeff prefers to characterise Vevo’s dealings with YouTube as “symbiotic” – although “declaration of independence” would be more appropriate.
“We said, ‘Let’s figure out how to work with them,”‘ he says. “There are no duplicate copies [of music videos] on YouTube, there were thousands before. The official versions are only available from us. They don’t threaten us. YouTube is a place where people can upload any video in the world; we’re not trying to compete.”
Caraeff points out that 50 per cent of Vevo’s traffic comes from YouTube search, and 30 per cent comes from recommendations of videos that users might like to watch that appear on the side of the YouTube web pages when a user is viewing clips.
Vevo’s business model is all about providing music videos that fans can access free, funded by advertising; or to put it another way, giving consumers an alternative to owning songs.
“I believe the future is access, not ownership, not iTunes as it is today,” he says. “We’re not trying to sell people music; our customers are not the small amount of people that want to buy music. We are about providing access: it is the only scalable model for the music industry. The question is, how do you do that and make money?”
Which raises the question of how well Vevo is actually doing. Caraeff doesn’t want to give away too much commercially but says it is already making “hundreds of millions of dollars” in revenue, although there are hosting costs to pay.
More than half of gross revenue goes to content owners – the label, artist or licenser – with the remainder being kept by Vevo or paid to partners such as YouTube.
Caraeff says that Vevo is “significantly ahead” of its original business plan — about 40 per cent ahead to be precise — and is on track to achieve profitability “in the very early part of next year”.
Yet there are problems. Caraeff’s business is dependent on advertising, and he is frustrated by the low rates companies pay to run campaigns around music content. His contention is that advertisers treat music content as inferior and that Vevo’s role is to “own” the prime content and then be able to position it as a premium product. Think the free-to-access equivalent of BSkyB owning Premier League football.
“The audience that loves music is vast and promising: it should be treated as if it were as valuable as the World Cup [audience to advertisers] or as premium TV content, not treated like it is a second-class citizen where advertisers don’t want to pay a premium,” he says.
“The revenue generated has historically been low. I don’t think it makes sense or is fair. I want to restore the premium lustre of music. Aggregation makes it as valuable as sport, Vevo is the catalyst.”
Vevo’s ambitions stretch far beyond simply cashing in on online music videos. Caraeff is keen on breaking into TV, through partnerships with broadcasters, as well as Vevo creating its own content. Vevo was briefly seen as a potential buyer for Rupert Murdoch’s MySpace (“when News Corp call, you take the call”). Caraeff says his shareholders Universal and Sony weren’t interested, but adds that “we are interested in figuring out how we work with them on TV business. How do you work with a Shine [Elisabeth Murdoch's production company], a Sky, a Star or Fox [News Corp-owned TV networks]?”
He points out that a significant proportion of programming on Fox, for example, is driven by music – such as American Idol, The X Factor and Glee – and Vevo is well positioned to look at all sorts of tie-ups such as awards shows.
“News Corp doesn’t have an MTV brand in their portfolio,” he says. “We wanted to figure out a way to work with them to be a brand in the programming space.”
While Caraeff admits that “nothing is going to completely fill the gap” of the massive decline in CD sales, Vevo is providing real returns to labels and artists, which bodes well for an industry that has struggled to adapt to the digital age.
He says Vevo has paid back about $US100 million in royalties to the industry in its short life to date.
“It is a tremendous figure, more than MTV has ever paid out,” he adds. “It is important to let artists, song writers, record companies and anyone else in the business of music know that there are new, viable revenue streams growing rapidly. That in a time of gloom in the sale of recorded music there are positive stories.” But still, also, some way to go.
Education: Did not go to university because “I started my first company when I was 18″
2004 Vice-president of wireless, Sony Pictures
2005 General manager of Universal Music Mobile
2007 Executive vice-president, Universal Music eLabs division, responsible for e-commerce and new technology
2009 Chief executive, Vevo