• by Laurie Sullivan  @lauriesullivan, November 13, 2009

It appears that music labels have begun to move closer to making money from digital videos online. Warner Music Group has inked a partnership with FreeWheel, an online advertising technology company, aimed at helping music labels bring in the bucks, but some analysts aren't quite sure whether it will work.

The partnership allows Warner Music to manage the digital music tracks and make money from online advertising using FreeWheel's Monetization Rights Management (MRM) platform. Warner Music will have an option to place, monitor and track the effectiveness of ads across artist sites and digital media platforms.

The deal that also supports a YouTube strategy took between nine and 10 months to pull together, according to Doug Knopper, Co-CEO at FreeWheel, San Mateo, Calif. "They have the potential to create a whole new model on how music videos are monetized online," he says. "The music, sports and movie industries are starting to figure out how to make money online."

FreeWheel's video ad management platform works with content owners, such as Warner Music, to manage and distribute videos as well as to manage the rights, accounting, revenue share and ads that serve up in the videos, which have ad tags. Freewheel's management platform is pre-programmed with instructions that determine the advertisements authorized to serve up in the content.

Knopper says FreeWheel created a hub, "an air traffic control room," to monitor the ad-serving and rights management platform, as well as manage the inventory for about 40 content owners and distributors. FreeWheel tracks the available ad slots and advertisements. About 60 engineers have been working on the system for about 2.5 years. The ads are sold and served on a CPM basis.

Music rights monetization sounds good -- it's the Holy Grail, but no one has tapped into the perfect solution, according to Marissa Gluck, co-founder and managing partner at Radar Research, Los Angeles, who isn't convinced the business model will work.

"Good luck with that," Gluck says. There are a ton of companies trying to figure out the best way to track rights holders. "It's complicated because most times there is more than one for one piece of music, a distributed network, and constituencies trying hard to avoid being tracked," she says. "I'm not talking about YouTube, but there are plenty of companies less vigilant about working closely with rights holders."

The music labels have undergone an "attitude" shift, however. While the labels have not fully embraced digital music, they are less aggressive about suing their customers, which seemed to be their main form of revenue for awhile, Gluck says.

Gluck points to ad-supported Spotify in the United Kingdom as a way for music labels to monetize content. "Most record labels see them as a real competitor to Apple's iTunes," she says, adding that the company has plans to cross the Atlantic into the United States.

Earlier this week, Google revealed that it has begun to test "skippable" pre-roll ads in videos on YouTube that could lead the Mountain View, Calif. search engine toward a new advertising model. The technology allows people who find the videos to click on the link and skip the ad, which takes them directly to the content. The ads will run on videos from content partners, which have already opted into the test. Knopper says FreeWheel works with YouTube to monetize videos.