Warner Music, in a negotiating power play, has started removing music video materials from YouTube after the two sides failed to reach a licensing agreement. The present licensing deal ends in march of 2009 and it’s obvious that Warner is adopting the “content is king” posture. At the heart of the issue, as always, is money. Warner wants a better fee deal and points to AOL’s offer of bigger license fees. In the end, these two companies need each other. YouTube is having a miserable time monitizing videos on the site. Music videos are the holy grail for YouTube because premiere music segments offer the biggest revenue potential. But for YouTube, the site continues to expand, along with revenues, to support too much non-profit generating material. The can’t afford to lose Warner and they don’t want to pay what Warner wants. On the other hand, Warner probably won’t throw in that closely with a sinking ship like AOL, no matter what the offer. YouTube has the one thing Warner needs – growing traffic. Lacking any reasonable alternative, these two will find a solution but it’s up to YouTube to figure out how to monetize materials, fix existing cost structures and leverage Warner materials to help get to profitability. YouTube has become a promotional spot for many new music bands and product promotion. With more videos being downloaded, increasing bandwidth demands and ISP efforts to cap traffic, it may be time for YouTube to examine a tiered payment structure for posting to the site. Warner has shown they are willing to over play their hand, unfortunately.