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 Thursday morning teleconference MySpace held with the press was anticlimactic since details about the service have been leaking for weeks.
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.
(For more on what lies ahead for EMI, read what the incoming chief of its digital unit, Douglas Merrill, had to say in this interview with CNET News.com from Wednesday: "Will former Google exec help save the music industry?")
The partnership with MySpace is another sign that the music industry has decided to embrace the Web and digital technology instead of waging war against it. As CD sales continue to shrink and piracy expands, the labels are moving toward the inevitable: a redefining of how they make money from music. With MySpace Music, the labels will get an equity stake in the new joint venture and a share of all the revenues the service collects.
To this point, none of the challengers to Apple's iTunes has been able to gather an audience of any relevance or able to cut licensing deals that would provide them with a music offering that equals or surpasses Apple's.
That changed today.
MySpace has 110 million users, 30 million who listen to music on the site. Combine those numbers with the 5 million music acts that promote themselves on the site and MySpace already has impressive music credentials. James McQuivey, an analyst with Forrester Research, said MySpace could help modernize the music industry.
"MySpace has the audience and environment to enable the music industry to get to the next digital level," McQuivey said. "What iTunes offers is a good buying experience but that's not all people do with music. They they talk about it, they share it, they try things out. Remember, this is the kind of activity that (record label) Universal Music Group was suing MySpace for previously."
McQuivey continued: "I think the labels said to themselves,'Oh, if we enable fans to have a fully immersive experience, they might spend more on music. MySpace can offer a place where all aspects of the music experience can be expressed. Imeem was getting close to this but MySpace, if they don't mess it up, should take the music industry to Music 2.0"
Thomas Hesse, president of global digital business at Sony BMG Music Entertainment agreed that part of what attracted the record companies to MySpace was its audience.
"MySpace is already one of the largest music communities on the Internet," Hesse said during an interview with CNET News.com "We're aligning our efforts to reach fans through every conceivable platform."
DeWolfe did not disclose what prices might be, nor would he disclose information about the status of a copyright-infringement suit brought MySpace by Universal Music last year. A source said that the suit was settled for a large sum.
Although DeWolfe declined to discuss financial terms of the deal, the source said that it is non exclusive, meaning that the labels are free to make similar arrangements if they choose. Facebook has been reportedly talking to the labels about launching its own music service.
Three Record Companies Team Up With MySpace for Music Web Site
In the latest effort by the ailing music industry to bolster its declining prospects, three of the industry’s four major companies have struck a deal with the social networking site MySpace to start a music Web site.
MySpace's co-founders, Tom Anderson, right, and Chris DeWolfe, center, with United State's Army Gen. James Lovelance, inaugurated the Operation MySpace concert last month.
MySpace said on Thursday that as part of the deal it would turn its popular MySpace Music site into a joint venture, bringing in Universal Music Group, Sony BMG Music Entertainment and Warner Music Group as minority owners. The music companies are expected to make their entire digital music catalogs available for listening and downloading on the new site, which will be introduced later this year.
The deal highlights the music companies’ scramble to keep pace as consumers migrate toward the fast-changing market for digital downloads, upending the industry’s traditional approach to marketing and distribution. It is also an attempt to encourage competition to Apple’s iTunes Store, which some music executives have criticized for exercising too much control in pricing and on other business terms.
In a sign of how quickly the landscape is shifting, Apple said Thursday that it had surged to become the nation’s largest music retailer, surpassing Wal-Mart for the first time, based on data from research firm NPD Group for the first two months of this year.
The latest deal also comes as MySpace is angling to differentiate itself from rivals like Facebook and retain its role as a central site for music fans. Many thousands of musical artists, from top stars to garage bands, have pages on MySpace where fans can interact with them and listen to songs. But Web surfers have been flocking to music-oriented social networks like Buzznet and Imeem, where listeners can also hear music free.
Chris DeWolfe, chief executive of MySpace, a division of the News Corporation, described the new service as a one-stop source for all music, in all its various digital incarnations.
Visitors to the site will be able to listen to free streaming music, paid for with advertising, and share customized playlists with their friends. They will also be able to download tracks to play on mobile devices, putting the new site in competition with similar services like those from Apple, Amazon.com and eMusic.
A subscription-based music plan, where users pay a monthly amount for unlimited access to downloadable tracks, is also being considered, Mr. DeWolfe said. Additional products like tickets, T-shirts, ring tones and other music merchandise will also be available.
“This is really a mega-music experience that is transformative in a lot of ways,” he said. “It’s the full 360-degree revenue stream.”
Some artists already offer ways to buy T-shirts and other items from their MySpace pages, but music executives involved in the planning of the new venture suggest that its marketing efforts will be much more comprehensive. MySpace Music will be run by an executive team that will report to a board composed of representatives from MySpace and the music labels.
EMI Group, the fourth major music corporation, was not part of the deal, but people involved in the negotiations said it would probably join soon.
The major record companies, who have suffered a long slump as CD sales have declined, are eager to prop up digital sales. Sales of albums in the United States, including digital sales, have declined roughly 11 percent so far this year, and sales of individual digital tracks, though up about 29 percent, have not increased enough to make up for that drop. Overall music sales dropped to $11.5 billion in 2006, from a peak in 1999 of nearly $14.6 billion.
The decline has forced the industry into a new age of experimentation. All four major record labels dropped copy restrictions for Amazon’s new music service, partly in an effort to counterbalance Apple’s strong position.
In another approach, the industry is seeking revenue that does not come directly from its customers, like the ad-supported element of the MySpace service. Music executives have also recently embraced such concepts as tacking extra fees onto the cost of portable music players or Internet access to compensate the industry for rampant piracy.
Michael Nash, Warner Music’s executive vice president for digital strategy, said it would be simplistic to view the MySpace venture as a gambit to challenge iTunes, which is closely tied into the iPod player. Unlike iTunes, he said, MySpace Music “is kind of a hardware-agnostic play” that wants to convert the existing social-networking audience into paying customers.
“It’s about being in business with that construct,” Mr. Nash said, referring to MySpace’s music site, which has emerged as the pre-eminent site for fans seeking to sample music from current artists.
Rich Greenfield, an analyst at Pali Capital, said MySpace was offering a big opportunity to the music companies.
“They have a huge community that wants to talk, share and learn about music,” Mr. Greenfield said. “Nobody else has that. There is music discovery happening on MySpace that is far deeper and broader than what’s going on iTunes.”
But first MySpace will have to prove that it can actually sell music. Though the company earns $70 million a month in advertising for the News Corporation, according to estimates by Pali Capital, it has never successfully sold products on a wide scale. A download service for independent music, begun in 2006 with Snocap, a music start-up, was considered a disappointment.
MySpace has not always had a friendly relationship with the music companies. Universal Music sued MySpace on the grounds of copyright infringement in 2006, saying the site’s users were illegally sharing music and videos. Universal has decided to drop the lawsuit in exchange for an unspecified cash settlement, according to people briefed on the negotiations.