The most important market trends and how Wall Street's best minds respond to them. Delivered every weekday.
Universal Music, the world’s largest record company, has launched the established media industry’s first legal action against user-generated internet sites in the wake of its distribution deal last week with YouTube, the most popular video-sharing website.
In separate lawsuits, Universal alleged that Grouper.com – recently acquired by Sony Pictures Entertainment – and Bolt.com had built up traffic by encouraging users to share music videos from its artists without their permission. In one incident, it claimed a video for the Mariah Carey song “Shake it Off” was viewed more than 50,000 times on Grouper without the company’s permission.
User-generated sites have exploded in popularity in recent months by allowing users to share video clips online. Last week, Google confirmed the sector’s appeal when it agreed to buy YouTube for $1.65bn.
Such sites have created a dilemma for established media companies. While they offer companies the promise of promoting their content to a vast new web audience, they also pose the risk of huge copyright violations.
Universal publicly threatened to sue YouTube before reversing and signing a partnership with the company last week to distribute its music videos. Universal was persuaded after YouTube agreed to pay a small licensing fee for the material and to share associated advertising revenues. It has also pledged to implement new systems to strengthen its copyright protections.
Google, Yahoo and Microsoft’s MSN have reached similar deals with the record companies, and News Corp’s MySpace is in negotiations. Universal also reserved the right to add Sony to the suit since it acquired Grouper in August for an estimated $65m. Sony and Bolt executives could not immediately comment on the suits’ claims.
Josh Felser, co-founder and CEO of Grouper, said: “The lawsuit is without merit and we expect to prevail. Our website is protected by federal law and we’re vigilant about taking down copyrighted content when we’re properly notified.”
Aaron Cohen, Bolt’s chief executive, disputed the notion that the primary function of its website was to share professionally made videos, saying most of its content was created by users. Bolt, he added, had promptly responded to requests from companies to remove their materials from its site and still hoped to establish partnerships with them.
Get alerts on US equities when a new story is published