YouTube has partnered with Universal Music Group (UMG) to launch a new music video service called Vevo. Under their agreement, YouTube will provide the infrastructure for a new site at Vevo.com, to be populated with video from artists on UMG-owned labels such as Decca, Def Jam, Mercury Records, and Verve.

YouTube will also host those videos on its own site, where they'll be housed in a Vevo channel via an embedded player. The companies will share revenue for ads served on both Vevo and YouTube. The free-to-view package will carry ads, including video spots of up to 15 seconds preceding the music video.

"We believe that video is the best opportunity for revenue generation right now," said Rio Caraeff, executive vice president of Universal's eLabs digital business strategy unit. "The advertisers and brands are more comfortable with video as a vessel for their message and their advertising spends. Streaming audio is harder to monetize under an ad-driven model right now."

As an added incentive to Universal, the player will feature a button enabling users to easily buy the tunes digitally through Apple Inc.'s iTunes and Amazon.com Inc., which send most of the revenue from music sales to the labels. For now, videos will not be for sale.

Universal will spend tens of millions of dollars on the project and Vevo will be a wholly owned Universal subsidiary, Caraeff said. YouTube, a subsidiary of online advertising and search leader Google Inc., will provide the technology.

The move had been rumoured since last month and it teams up the largest video Web site and the largest music company. The idea is that the site will be able to sell higher-priced ads around the professional content, like Hulu, the joint venture between NBC and Fox, does with TV shows.

It also mirrors MySpace Music, which is a joint venture between MySpace and the four major music labels, Warner Music, EMI, Sony and UMG, except that it won't be based around streaming audio, it will be about music videos.

YouTube is pursuing big licensing deals on a number of fronts. It's reportedly in talks with Sony to license feature-length films, and with CBS to get distribution rights for its current TV shows. YouTube already carries long-form television programming from CBS and Sony, but the shows are old fare - "Beverly Hills 90210," "MacGyver, and "Star Trek - The Original Series," among others.

As part of the music video deal between YouTube and UMG, the studio giant will also continue to participate in a YouTube program allowing studios to exercise their intellectual property rights on user-generated videos that use their recordings. Under the program, UMG is entitled to a cut of ad revenue from advertising served alongside those videos.

When Vevo launches later this year, it will contain UMG's entire catalogue of professionally created music videos, along with artist-created videos and user-generated clips hosted on YouTube. UMG owns around 10,000 music videos.

"Vevo will expand the premium video marketplace, generate new revenue streams for content creators, and provide brand advertisers an unprecedented opportunity to get in front of a highly engaged audience," said Doug Morris, UMG's chairman and CEO, in a statement.

Universal, a unit of France's Vivendi SA, is the world's largest recording company and already has the most watched channel on YouTube with some 3.8 billion views since August 2006.

David Eun, Google's vice president of strategic partnerships, said that previously, YouTube's relationship with major content creators like recording labels has been "fraught with tension and animosity and sometimes lawsuits." ''There hasn't been a genuine partnership that I think this model represents," he said.

In December, Warner Music pulled all of its music from YouTube, saying the payments it received did not fairly compensate the label or its artists and songwriters. Viacom Inc. is also suing YouTube for $1 billion, saying the site infringes on copyrights of its shows, including Comedy Central's "The Daily Show with Jon Stewart" and Nickelodeon's "Sponge Bob Square Pants" cartoon. (See: Viacom sues YouTube, seeks $1 billion damages for copyright violations and YouTube pulls the plug on music videos in the UK)