YouTube owner Google is poised to take a stake of close to 10% in Vevo, the music video website founded by record company majors Universal and Sony, in a deal thought to be worth about $50m (£42m).
The deal between Google and Vevo, which has not yet been signed, is understood to include the renewal of an agreement in which the latter will distribute hundreds of millions of music clips and videos on YouTube.
Last year Vevo flirted with distribution deals with Facebook and MTV-owned Viacom, which has an online video service backed by the other major global record company label Warner Music, to look at improving the revenues it can feed back to the music industry.
However a deal with YouTube, the world's largest video-sharing site, has proved to be the most attractive.
"While we don't comment on individual negotiations, we always hope to renew our relationships with valuable partners so we can continue to provide YouTube users with the best possible music experience," said a spokeswoman for YouTube.
Vevo responded saying they had no comment.
With plummeting sales of physical CDs – symbolised by struggling high street retailer HMV being put into administration earlier this week – securing digital revenue streams is critical for the music industry.
Earlier this month the Entertainment Retailers Association reported that downloads of music, TV shows, films and video games topped £1bn in the UK for the first time in 2012. Digital music sales grew but revenue from physical singles fell by 44% year on year and albums dropped 11%.
Rio Caraeff, the chief executive of Vevo, has described the company's often contentious relationship with YouTube as "symbiotic".
Last January, Caraeff said that Vevo was making more than $150m a year.
Vevo, which launched in late 2009 after striking an initial three-year deal with YouTube, is also backed by EMI Music and counts Abu Dhabi Media Company as an investor.
The service became available in the UK in 2011 and last year began an aggressive push into mainland Europe launching in France, Spain and Italy.
Last May Google participated in a $35m investment round in Machinima, the web video network aimed at gamers.
• To contact the MediaGuardian news desk email editor@mediatheguardian.com or phone 020 3353 3857. For all other inquiries please call the main Guardian switchboard on 020 3353 2000. If you are writing a comment for publication, please mark clearly "for publication".
• To get the latest media news to your desktop or mobile, follow MediaGuardian on Twitter and Facebook
