• by Wendy Davis , Staff Writer @wendyndavis, September 13, 2006

Just as MySpace prepares to start selling music downloads, Universal Music Group is hinting that it will sue the social networking site for copyright infringement.

Speaking at a Merrill Lynch conference Tuesday, Universal Music CEO Doug Morris complained that YouTube and MySpace owed Universal "tens of millions of dollars" for copyright infringement.

Universal is in negotiations with the sites, but indicated yesterday that it will sue should talks fall through. "This could be the first salvo from a content player against business models based on user-generated content, much of which relies on copyrighted material," wrote Merrill Lynch analyst Jessica Reif Cohen in a report about the conference. Morris's remarks, she wrote, "strongly suggested the company was planning to take legal action in the near-term to either prevent the illegal use of their content on these Web sites or to ensure the company is compensated for the use of its content."

The company's main concern appears to be the MTV-style music videos that users have uploaded to the site. Universal makes a limited number of these types of clips available for free streaming at AOL and Yahoo, but the portals pay a licensing fee.

YouTube and MySpace, by contrast, have no agreement with the major labels to allow them to stream music videos. But the sites also don't post the content themselves; rather they rely on users to post it.

Regardless, it's hard to see how Universal has lost any money from these sites. It's not as if the millions of YouTube visitors stopped spending money elsewhere because they discovered YouTube; rather, the sites offered them videos they couldn't easily find anywhere else.

Arguably, YouTube might take traffic away from AOL and/or Yahoo's music sites, which potentially decreases the licensing fees the sites pay Universal. But without more specifics, it's hard to know whether that's the case.

Coincidentally, Morris vented about YouTube at the same time that NBC exec Randy Falco was likewise complaining about the video sharing site. "When 'Saturday Night Live' had a great clip of 'Lazy Sunday,' YouTube made a lot of money off it," Falco said Tuesday at a press conference, announcing the new broadband venture NBBC. "In the future, when we have a 'Lazy Sunday' clip, NBBC will make a lot of money on it."

It's not clear that YouTube, then monetized by Google pay-per-click ads, made a lot money from airing "Lazy Sunday." But it's apparent that established entertainment companies don't like YouTube leveraging their content to build its brand name.

Yet the only reason this is happening is because those traditional companies relied on TV to create a scarcity. They hoarded much of their video content for so long--making it available as special one-time only broadcasts and the like--that consumers were left with an appetite to view more than was available.

While that attitude's beginning to change--NBC just this morning said it was going to stream full episodes of all new Fall prime-time shows for free--a great deal of content remains unavailable through official channels.

Until the companies make far more of their libraries available on demand, they shouldn't be surprised that consumers will take matters into their own hands, to the benefit of YouTube and other enabling companies.