The change, which is likely to be followed by other record labels, marks a potentially substantial shift in the economics of the online-entertainment world. Some of the most popular entertainment services, such as Yahoo's Launch and the AOL Music service, are built around streaming millions of free videos a month to customers.
Label executives have long bemoaned their initial precedent-setting decision to provide MTV with virtually free access to music videos in the early 1980s. Universal's decision marks an attempt to ensure that the label profits from an on-demand medium that is quickly becoming the modern version of MTV.
A Universal spokesman declined to comment on the decision, which has not been publicly announced. Some Internet companies said they had been notified of the policy earlier in the week.
Sources familiar with the deal said Microsoft was approached earlier and had already agreed to pay Universal for use of videos, however.
"The digital music and video market is still in its infancy, and the business models are continuing to evolve," Rob Bennett, senior director of MSN Entertainment, said in a statement. "As an industry we are all figuring this out together, and it's our job at MSN Music to provide a great platform to bring content owners together with consumers."
According to people close to the label, the policy is aimed at Internet, satellite and cable TV operations that are providing on-demand access to videos. The policy also will cover live performances by Universal artists.
Artist Web sites and one-time deals with specific consumer brand sites will be excluded. Retailers, radio stations and other promotional sites will be allowed to stream 30-second clips.
As an inducement to sign up, Universal plans to stop buying advertising on any site that does not strike a deal under the new policy.
On-demand videos have become ain the last year. Label executives now say marketing campaigns on Yahoo's Launch or the AOL Music service can be as important as major broadcast radio play.
AOL Music recently said that itup to 4 million viewers per week to its on-demand AOL Sessions service online, and that the versions of those videos shown on Time Warner Cable's on-demand programming were watched nearly 8 million times per month.