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Sunday, April 6, 2008

MySpace Music, Rival For iTunes?

The Thursday morning teleconference MySpace held with the press was anticlimactic since details about the service have been leaking for weeks.
Executives from MySpace officially announced the creation of MySpace Music, a service that will be jointly operated by News Corp.'s MySpace and, at least initially, three out of the four top record labels

The service will roll out gradually over the next three to four months and offer free streaming music, unprotected MP3 downloads, ringtones, and e-commerce offerings such as merchandise and ticket sales, said MySpace CEO Chris DeWolfe. The goal is to make MySpace a one-stop shop for everything music. Among the top four music companies, EMI was the lone holdout. A source with knowledge of the negotiations said that MySpace and EMI continue to seek a deal

It was bound to happen, eventually. MySpace, the biggest social-networking site, has announced its latest initiative, MySpace Music, a new service through which the News Corp.-owned website will offer music (and not only) to its users.

MySpace has signed deals with Sony BMG Music Entertainment, Warner Music Group Corp and Universal Music. One name is missing for now, EMI, but three seems to be the lucky number.

However, the new deal seems to be a win-win situation. MySpace will be able to generate a new stream of revenues from its huge audience, while the music companies will have a new way to compensate the declining CD sales.

Lately, the music studios are searching for new business models to sell their music to a new generation of consumers.

“We believe that one of the greatest growth opportunities for our industry is to develop new partnerships and models focused on unlocking the value of music in the online community space,” said Edgar Bronfman Jr., chairman/CEO of Warner Music Group, in a statement about the new partnership.

But MySpace is aiming to create something bigger than just a digital music store. According to Chris DeWolfe, chief executive of MySpace, the company wants for its newly announced MySpace Music to be a service through which people will be able to buy tickets, listen to free streaming music and share their playlists with their friends.

But MySpace is rather late to this game. In January, Last.Fm has signed a deal with all the four music giants to offer to its users free, global, on-demand access to the largest licensed catalogue of music. On all tracks can be streamed for free up to three times each. After that, the listener is invited to buy the song from iTunes, Amazon or 7 Digital. has 20 million unique monthly visitors and besides the music companies, has signed a similar deal with 150,000 independent labels and artists.

Last year, Universal Music signed a deal with Imeem, a social networking service launched in 2004, which claims to have over 19 million users every month. According to the terms of the agreement, Imeem users are able to listen to the free songs provided by the major music label. The users will only be able to store music on personal pages, but Imeem offers direct links to Apple’s iTunes store or for those who wish to download and store them on their computers or MP3 players.

As a digital music store, MySpace will have to face the strongest competitor on this emergent market, Apple’s iTunes, which was recently ranked as the biggest music retailer in the United States, according to The NPD Group.

On the other hand MySpace should pay attention to Amazon’s experience. Last year, the online retailer has launched Amazon MP3, the biggest collection of DRM-free tracks. Amazon has signed deals with all the four major music labels, and it has almost 4 million songs from more than 270,000 artists.

By selling unprotected songs, Amazon MP3 has tried to exploit a weakness of iTunes. The tracks downloaded from Amazon are compatible with all MP3 players currently on sale, including Apple's iPod and iPhone, Microsoft's Zune, Creative's Zen, SanDisk's Sansa or Toshiba's GigaBeat. Also Amazon MP3 is selling the songs at 89 cents, making the offer even more interesting for potential buyers, because iTunes sells tracks for 10 cents more.

However, despite its efforts Amazon MP3 didn’t manage to be a real threat for iTunes. According to the report released earlier this week by The NPD Group, Amazon MP3 has ranked fourth amongst the music retailers, behind Wal-Mart and BestBut.

The NPD’s report puts Apple's share of the music business at 19 percent, while Wal-Mart is at 15 percent, Best Buy is at 13, followed by Amazon at 6 percent.

It seems like the iPod + iTunes combo (and the newly iPhone + iTunes combo) is still unbeatable and no one has managed to find the right formula to compete with Apple.

Of course, MySpace Music adds into the equation the interaction between the music artists and their fans and between users themselves, but is hard to believe that this will be enough to beat iTunes.

However, MySpace did not offer too many details about its plans, so let us wait and see how this will play out.

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