ANALYSIS - YouTube dispute underscores music labels weak hand

By Yinka Adegoke

NEW YORK (Reuters) - First it was MTV, then it was Apple, and now it's YouTube.

The music industry, faced with declining CD sales, has repeatedly tried to find new income streams only to see its partners thrive with minimal benefit to the labels themselves.

So in the new battleground of online video, music companies are desperate to avoid past mistakes, but they are finding it tough to negotiate with a powerful new Internet partner.

Warner Music Group's decision to pull thousands of music videos from Google Inc's YouTube last Saturday, after the collapse of contract negotiations, shows just how far music companies may have to go to gain any leverage.

Some of the major labels are even considering forming a joint music video site to boost their bargaining power, said one music executive, as the dispute between Warner and YouTube underscores the limitations of relying on outside partners.

Such a joint venture could look similar to NBC Universal and News Corp's Hulu.com for putting TV shows online, and it could include YouTube in the partnership, said the executive, who declined to be identified as talks were still at a very early stage.

As CD sales plunge and the growth of digital songs slows, music labels increasingly consider online video to be key to revenue growth. But they do not have a strong hand in licensing negotiations with YouTube, which along with News Corp's MySpace.com, has become one of the most important music discovery tools for young fans.

Echoing the success of Viacom Inc's MTV Networks in the 1980s, or Apple Inc's iTunes since 2003, YouTube has in three years grown to become the largest online video site with more than 100 million U.S. viewers in October, according to Web audience measurement firm comScore.