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Summary:

MySpace Music, a new music service from the social networking company and a consortium of big music labels, is expected to debut soon. But it’s entering an arena already filled with well-entrenched players; how can it possibly hope to compete?

[qi:004] MySpace Music, a new music service plotted by MySpace and music labels, is likely to debut soon with much pomp and show. And despite all the pre-buildup hype it is by no means a slam dunk.

Earlier Sunday it was reported that the company is looking to raise about $100 million on a whopping valuation of $2 billion. Nevertheless, the names — Fox, Sony BMG, Universal Music Group Warner Music — involved in the project are going to draw comparisons with another service, Hulu, which had raised a similar amount at a $1 billion valuation, even without a name.

Why a company needs to raise hundreds of millions of dollars in order to fund itself is hard to fathom — after all this very same company has multimillion-dollar advertising deals with some major brands including McDonalds, State Farm and Toyota. Perhaps raising money is necessary because there is no hope for this joint venture to turn a profit.

Why can’t its corporate backers, News Corp., and all the record labels who own a piece of this company pony up the dollars themselves? Or do their non-actions speak for their relative faith in the prospects of the project? Of course, if I was them, I would not put my own cash in a company that has failed to hire a chief executive, though it has been a few months since the service was first announced in April 2008. Can’t they convince anyone to take on this mission impossible?

The reason I call it mission impossible is because I think the labels and MySpace are trying to win yesterday’s war. The service, which will sell DRM-free downloads, is going to face many well-entrenched competitors — Apple being the biggest. MySpace Mobile downloads are going to be powered by Amazon, and I am sure that they will take their fair share of the download sales.

MySpace Music also wants to make money selling concert tickets, ringtones and other merchandise — another business where competition is fierce. Their other revenue stream is from ad-supported music streams — not an easy business, because they need to have millions of people streaming tunes all day long in order to rack up sizable revenues. And even then, revenues don’t necessarily assure profits. Given how poorly other ad-supported services have done, there are questions about this service. One way to make money would be for record labels to cut artists out of their share of the sales.

The record labels are still not facing the proverbial music and understanding that their business model is completely broken, including the licensing end of the game. They need to learn that they don’t need to start a company, but instead encourage a thousand others. Record labels need to focus on what they know: finding talent, making them stars and putting their current cost structure on an anorexic’s diet.

There is an air of desperation around this venture. MySpace needs to ensure that Facebook doesn’t eat its lunch, as it starts to trail in raw number of users. On the revenue side of things, MySpace is beginning to sputter. In June, Michael Nathanson, an analyst with Sanford C. Bernstein & Co., told The New York Times, “The jury’s still out on MySpace’s ability to monetize…We don’t have much conviction in the long-term ability to grow this business based on what we’ve seen lately.”

The record industry has shrunk by about a third in past five years — mostly because of the incompetence of the guys who run the business. They fought the technology and now are coming to play at a time when the other team has hit the showers.

Before I go: Shouldn’t this so called company — a cartel really — get a closer look from the Justice Department? After all, three record labels who own 70 percent of the music business will own a major part of this company. How is that kosher?

  1. fyimusic.ca » Blog Archive » Today’s headlines Monday, September 15, 2008

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  4. Couldn’t agree more – 3 issues here as I see it.

    1.People are getting tired of logging in and out of services setting up friends, inviting people to join them and what not, so as a band (I have 2 band pages on myspace) what I find is that the “friends” that you amass are usually just other bands.

    2. They aren’t offering anything really earth shattering…you can listen to a bands entire catalog – big deal. If it’s an indie band, they probably only have one or two albums and you can preview songs on itunes already. There are lots of other sites that do this better (check out http://www.thesixtyone.com for example)

    3. They are betting a motherload of money on this – which means that success can only be quantified as two or three motherloads…and that’s not going to happen under this kind of model.

  5. I’d disagree with you that record companies are even ‘good’ at spotting talent

  6. How can Hulu – a site with zero technology and a business model that undercuts the value of advertising around prime time VOD TV quality content – have a valuation of $1B? Hulu only makes it by being a destination, and Comcast et al have shown that no one – Veoh, Hulu or the networks directly – will replace a multichannel cable service without the MSO playing some role. So Hulu, that sells ads at 50% the rate as the sales team from the networks from whom Hulu licenses content and only puts in 3 minutes of ads per hour, is worth $1B? That’s simply ludicrous.

    Have you ever tried watching a program on Hulu from home on a wireless network or in a hotel room (ie. not the fat pipe at work)? It’s simply unbearable compared to ABC.com or FOX.com. And it is not a TV like viewing experience. Hulu should go away so that FOX and NBC are freed to go after the market directly without worry that another sales force is out undercutting the market selling their same audience…and serving 3 minutes of ads per hour on top. Internet TV cannot survive under the Hulu model.

  7. to add to a previous comment here: “friends” on myspace band pages are usually taken to indicate counts of fans. if you have a myspace account, you know that you occassionally get friends requests from bands. even for those who agree, there is little interaction between the two beyond that.

    how do people find their music these days? and how do they consume music beyond that? I especially love this part of your post: “The record labels are still not facing the proverbial music and understanding that their business model is completely broken, including the licensing end of the game. They need to learn that they don’t need to start a company, but instead encourage a thousand others.”

  8. I don’t think this is going to work either, mostly because consumers don’t need it. People seem to really love iTunes. Record labels might not like iTunes because they don’t make enough money from iTunes to sustain themselves. (That might explain why they are investing in this and in so many other services.)

    If I worked at a record company, I’m not so sure I could identify what exactly music fans want from me other than free music. I’d probably try a million crazy things too.

  9. I’d have to disagree.

    I am friends with lots of people in the music business including musicians, a number of small labels, a handful of promoters (think Bill Graham), and other B2B players. I am also a heavy lurker in the ‘valley echo chamber’. You seem to understand that the music industry has shrunk and are in need of new revenue streams, yet you dismiss the fact that MySpace has identified those exact revenue streams (concert tickets/ merch) and has a plan to execute. I will grant you ad supported streaming will be difficult if not impossible to pull off. You also failed to mention the partnership myspace has with zazzle, which should put them in a good position for distribution/fulfillment/ inventory management.

    MySpace continues to lead in members in the 9 largest markets in which they participate, the most significant being the US. Most people I know are not always online and mostly use PCs for work with a possible hour or two in the evening (including a myspace visit) . They are huge music fans however, going to at least 1 show per week. Just as “ampbuzz” states above these people don’t want to sign up for another site, and they already have myspace.

    @ampbuzz- Everyone is on myspace, they don’t want to sign up for, remember, or tell their friends to go to “the sixtyone”. Myspace has the members and recognition (esp in the music biz). You say people don’t want to go to all these sites, and then you mention some very niche player in the indie music space that just doesn’t have enough to offer. Everyone is on myspace, why do we need another space?

  10. With economic conditions not exactly stable, perhaps they’re worried about raising money down the road. You’re never dead until you’re out of cash.

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