34 Comments

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?

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

    [...] Why MySpace Music is likely to fail [...]

  2. MySpace Music – Is This The Facebook & iTunes Killer? | WildBlueSkies – Trends and strategies in Digital Media Monday, September 15, 2008

    [...] that break the iTunes/iPod magic. And then, if this paints such a rosy picture, then why, as Om Malik at GigaOm asks, is the company is looking to raise about $100 million on a whopping valuation of $2 billion? Does [...]

  3. MySpace Music – Is This The Facebook & iTunes Killer? | WildBlueSkies – Trends and strategies in Digital Media Monday, September 15, 2008

    [...] that break the iTunes/iPod magic. And then, if this paints such a rosy picture, then why, as Om Malik at GigaOm asks, is the company is looking to raise about $100 million on a whopping valuation of $2 billion? Does [...]

  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.

  11. Kimberly Clarkson Monday, September 15, 2008

    I second Om on this, but not with the fact that MySpace music will fail because of severe competition. There is no clear market leader in Music recommendations, few successful companies like ilike, etc are out there, but still there is no market leader yet! I stumbled upon a company called Cruxle (http://www.cruxle.com) and found it very interesting because they bring all your entertainment in one single place based on recommendations from Social networks. They seemed to be much more interesting than MySpace Music, and I strongly believe that only if things consolidate in one place, there is a chance to become a market leader. My few cents!

  12. Links for 9.15.08: Best Buy’s Napster, Dylan poems, ugly metal men, fat guy shirts… « the listenerd Monday, September 15, 2008

    [...] Giga Om’s take on why MySpace Music will fail: “The reason I call it mission impossible is because I think [...]

  13. @Kimberly

    Last.fm (CBS/viacom)
    pandora
    imeem

    The music recommendation space has very good technology, but their margins are horrible. One needs to be infront of a PC or iphone to have those services. Most people still get music recommendations from their friends and radio. The long tail will be very thin, good luck.

  14. Kimberly Clarkson Monday, September 15, 2008

    @Tim

    It is true that the margins will be lower for music recommendation companies, the major reason being the target segment relatively smaller (not all people will want to go to a website to get music recommendations, unless they are big music buffs — similarly for movies or any vertical in the entertainment sector). However, as I’d mentioned, if there should be a leader in this recommendation space, then the company should be capable of attracting a bigger target audience, in other words, all movie buffs, music fans, tvshow fans, book fans, video fans, sports fans, video games fans should be targeted and we need a perfect website that will cover almost all of these segments. Essentially it should become a portal for recommendations for all verticals of entertainment. And I believe Cruxle (www.cruxle.com) is one of those type of companies that has 5 different verticals of entertainment. The beauty of that site is that they transition people from one category (say movie fans) to other category (say music) even if they are not that big a fan of music. Quite ambitious, but certainly interesting, and they don’t expect any thumbs-up/thumbs-down from users in order to provide recommendations — it’s all done automatically deriving data from Social networks.

  15. What I want to know is how Myspace and the labels are going to incentivise music lovers, bring them into the value chain and at the same time attack online copyright infringement.

    P2P sharing is the real threat to the industry – not itunes.

    Myspace provides THE BEST opportunity to counter that threat… call me if you are still looking for a CEO…!

  16. Paul:
    you can already go to imeem, search for an artist and title and listen to that track in CD quality, that experience is already making p2p less interesting for many users. Myspace music is a less potent weapon against p2p since it’s missing one major label and a whole lot of indies.

  17. Unsigned resigned… | citizensound Wednesday, September 17, 2008

    [...] response on how effective MySpace is for unsigned artists on a post to an article about the new MySpace music store, by dotcom industry commentator, Om Malik. Ampbuzz said “People are getting tired of logging in [...]

  18. MySpace verschiebt Start des neuen Musikportals | freshzweinull +++ Wednesday, September 17, 2008

    [...] gigaom.com, alleyinsider.com, zweipunktnull.org, [...]

  19. The “old-school”- record industry is dead.
    And on myspace it’s getting harder and harder to promote yourself as an artist.
    The future are sites like Jamendo. More and more great Bands are giving away their music for free there. Come one – who trusts a major these days?

  20. I don’t know what new MySpace Music brings to the Music On Demand service. Aren’t websites like http://www.deezer.com/en already perfect, or almost, for that?

  21. PolkaRobot | Blog Archiv » Lesezeichen vom 18.09.2008 Thursday, September 18, 2008

    [...] Why MySpace Music Is Likely to Fail "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." [...]

  22. Well said Om, especially the anti-trust part.

    Unless MySpace was catering to specific music niches, there is no wide moat that makes this business idea defensible.

    Now if they had EXCLUSIVE deals with some new talent and existing talent, I would be more optimistic. Merch. will be the best opportunity, but only if the artists allow their greedy labels to get their hands on that – which won’t happen.

    p.s. I watch Hulu on a wireless network at home and have zero complaints. I also watch Joost and rent DVDs from Netflix. I need ABC.com for nothing

  23. Nadalina Levinsky Friday, September 19, 2008

    @David,
    If you are a big movie/music/books/tvshows/videos fan, then you must probably check out http://www.cruxle.com. They have excellent recommendation engine that directly comes from MySpace people. Smart move in the recommendation space, I guess!

  24. 5 Reasons The New MySpace Music Will Fail Sunday, September 21, 2008

    [...] tiny from: TechCrunch.com, GigaOm.com Share and [...]

  25. Myspace Music looks great, however, right now I’m using http://www.deezer.com/en and it’s AWESOME! A huge catalogue, a great interface, and quite good focuses on emerging artists! Great!

  26. The Fact & Fiction of MySpace Music – GigaOM Wednesday, September 24, 2008

    [...] Positioning it as an iTunes competitor helps with inflating the mystical valuation. Worried that my own initial skepticism might blind me from getting the facts, I decided to look elsewhere to get a more clearer point of [...]

  27. The Fact & Fiction of MySpace Music – GigaOM Wednesday, September 24, 2008

    [...] Positioning it as an iTunes competitor helps with inflating the mystical valuation. Worried that my own initial skepticism might blind me from getting the facts, I decided to look elsewhere to get a more clearer point of [...]

  28. Sven Seelenmeyer Monday, September 29, 2008

    Still exists!

    Its name is “Space Jammer” and it plays MySpace music and creates playlists.
    You can buy the music you are listening to directly out of the program at amazon, musicload, 7digit, cd-baby or iTunes (vers. 1.4). You also can watch videos of the bands, send comments to them and much more. The program is freeware and available at:

    http://www.spacejammer.com

  29. Michael Altendorf Wednesday, January 21, 2009

    I think when Amazon join MySpace for the download shop Myspace Music will be soon No2 behind iTunes.
    The rest of the pie – 95% – do still not pay anything. You are right! And nobody knows if the digital natives who never learned to pay for movies or music will learn it in the future. But the also have such little attention time that they will soon get bored form in audio ads, in video ads etc…

  30. With MySpace Changes, a Social Networking Era Ends Thursday, April 23, 2009

    [...] Regardless, of his exit, there is a strategy in place that could turn MySpace into decent-enough money maker: MySpace Music. By looking to social network’s musical roots, MySpace executives realized that they could build the MTV of the broadband generation. Combining text, audio, video, and social abilities with its audience, MySpace can thrive as a niche-yet lucrative musical destination. A lot has to go right for that to happen. I have outlined a long list of reservations about MySpace Music. [...]

  31. Finance Geek » Social media must prove profitability Thursday, April 23, 2009

    [...] He does however believe that there is a profitable future available for MySpace Music, although they still have a few things they need to get right. [...]

  32. Is Warner Music Killing Music Startups Thursday, May 7, 2009

    [...] checks. Apparently, labels are also dissatisfied with MySpace Music and the money it is generating. Again not such a surprise for our readers. As startups such as Imeem stare down the abyss, it is the record labels who will ultimately pay [...]

  33. Digipendent » Blog Archive » Inspirations Come From Outside The Music Industry: by Bruce Houghton Monday, June 22, 2009

    [...] Labels: Stop Crying Over Spilt Milk, Why Apple’s iTunes Concessions Are a Double-Edged Sword and Why MySpace Music Is Likely to Fail, you don’t have to agreee, but you better pay attention becuase the rest of the business [...]

  34. Why imeem Really Sold Out Tuesday, November 17, 2009

    [...] I felt that they cut bad deals and had painted themselves into a corner. Frankly, I am not that hot on MySpace Music either. MySpace, earlier bought iLike, another free music service for $10 million — a firesale price [...]

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