The Velvet Underground

1. Candy Says

2. What Goes On

3. Some Kinda Love

4. Pale Blue Eyes

5. Jesus

6. Beginning To See The Light

7. I'm Set Free

8. That's The Story Of My Life

9. The Murder Mystery

10. After Hours

Before work on their third album started, Cale was replaced by Doug Yule of Boston group the Grass Menagerie, who had been a close associate of the band. Yule, a native New Yorker, had originally met the Velvets at his apartment in Boston which he happened to be renting from their road manager, Hans Onsager, who worked closely with the Velvets' manager Steve Sesnick. Sterling Morrison was a frequent house guest at Yule's apartment when the band performed at the Boston Tea Party, and mentioned to Lou Reed that Yule was practicing guitar and was improving quickly. It was following this discussion that led to Yule's invitation to join the Velvets shortly before two upcoming shows in Cleveland, Ohio, at the club La Cave. Yule would handle bass and organ duties in the band, and would contribute vocals as well. After several months of shows in the US, the band swiftly recorded their third album The Velvet Underground in late 1968 at TTG Studios in Hollywood, California, and was released in March 1969. The cover photograph was taken by Billy Name. The LP sleeve was designed by Dick Smith, then a staff artist at MGM/Verve. Released on March 12, 1969, the album failed to make Billboard's Top 200 album chart.

The harsh, abrasive tendencies on the first two records were almost entirely absent on their third album. This resulted in a gentler sound influenced by folk music, prescient of the songwriting style that would soon form Reed's solo career. While Reed had covered a vast range of lyrical subjects on the first two Velvet Underground albums, the lyrical themes of the third album were more 'Intimate' in nature. Reed's songwriting also covered new emotional ground as well, as heard in the songs 'Pale Blue Eyes', 'Jesus', 'Beginning To See The Light', and 'I'm Set Free'. The personal tone of the album's subject matter resulted in Reed's desire to create a 'Closet' mix that boosted the vocals to the forefront, while reducing the album's instrumentation. The second(and more widely distributed) mix is the stereo mix done by MGM/Verve staff recording engineer Val Valentin. Another factor in the change of sound was the band's Vox amplifiers and assorted fuzzboxes rumored to have been stolen from an airport while they were on tour and they obtained replacements by signing a new endorsement deal with Sunn. In addition, Reed and Morrison had purchased matching Fender 12-string electric guitars, but Doug Yule plays down the influence of the new equipment.

Morrison's ringing guitar parts and Yule's melodic bass guitar and harmony vocals are featured prominently on the album. Reed's songs and singing are subdued and confessional in nature, and he shared lead vocals with Yule, particularly when his own voice would fail under stress. Doug Yule sang the lead vocal on 'Candy Says'(about the Warhol superstar Candy Darling), which opens the LP, and a rare Maureen Tucker lead vocal is featured on 'After Hours', which closes the album. It is a song that Reed said was so innocent and pure he could not sing it himself. The album also features the experimental track 'The Murder Mystery', which featured all four band members(Reed, Yule, Tucker and Morrison) reading different lyrics against each other(to a jarring effect), as well as the ballad 'Pale Blue Eyes', which would soon be covered by many artists including R.E.M, The Killers, and many more. Despite the album's poor commercial debut upon release in 1969, its influence can now be heard in many later indie rock and lo-fi recordings.