On September 25, MySpace launched MySpace Music, designed to let fans stream millions of songs for free and link to purchasable downloads of songs and albums from other sites.
The thing that makes MySpace Music different from other online services is that it aims to be the largest Internet collection of music, not a distributor. MySpace hopes to generate enough revenue to make a profit from advertisements, especially those on the pages that feature free downloadable songs and content. Eventually MySpace hopes to offer merchandise and concert tickets as well as any other content it can get its hands on.
Another difference came in obtaining the rights for all these tracks. In doing so, MySpace made the four major labels equity partners in the site. This begs the question, will direct label involvement help drive an online music service or will they choke it to death?
MySpace is looking to regain some of its members and its standing in the online social world. It has about 70 million monthly users, with about 30 million unique visitors, but those monthly numbers are down by nearly 10 million from last year. Facebook took away some social-centered users, while sites like iLike and Imeem have taken away some music-centered users.
The hope for the labels is that this might drive up digital sales and create other revenue, as the music industry is in turmoil. The year 2007 saw a 20% drop in physical CD sales, about $2 billion. Digital sales increased in 2007, but the $500 million gain didn’t come close to making up for that loss.
MySpace could help put a dent in those losses because of its user demographics. Internet users over the age of 13 that access music through social sites spend around $70 a year each on CDs, downloads and music subscription services, according to the NPD Group. For those of the same age who do not use social networks, the study found they spend around $25 apiece annually on the same services.
MySpace will not be a direct competitor to iTunes or Apple. MySpace will most likely not launch any iTunes killer app or features geared at driving customers away from the iPhone. MySpace will hit Apple, but in a subtle way.
The links to purchase songs on Artist pages will take users to the Amazon.com MP3 store. Amazon’s store does not have near the offerings of iTunes, but it beats iTunes in quality.
MP3s from Amazon are 256 kbps, compared to iTunes’ 128 kbps. Amazon offers all DRM-free tracks and Apple does not – though this could change thanks to a lawsuit against Apple. Tracks are also often a little cheaper when bought from Amazon.
The store hasn’t before touched iTunes, even with these features. Now, however, it has MySpace driving traffic directly to it. Apple has a great product and great advertising, but MySpace is often where users turn for online music discovery. If even a small percentage of MySpace users follow the Amazon link to purchase a download, MySpace will make its dent in MP3 distribution.
Piper Jaffrey estimates Apple will sell 2.4 billion songs this year, while Amazon will sell just 130 million downloads. Its researchers said that MySpace Music could produce a 60% increase for Amazon to more than 208 million songs.
Searching for MySpace Music news doesn’t lead to such a great feeling about the service. The indie labels aren’t happy at all with MySpace, which is a little strange since indie labels helped MySpace gain some of its early dominance in online music discovery.
Fairness is what’s at the heart of the indie grumbling. The major labels made deals with MySpace that gave them equity in the site. Most independent labels were not offered any equity, so if they choose to make music available via MySpace, they will be using a service vehicle owned by their largest competitors.
The deals aren’t that clear cut and the system is mostly opaque, so what are the chances that indie music will get a fair shake? Can there even be a level playing field with and without equity? Some even worry they won’t be able to trust the information about downloads and track plays they get from MySpace, and are pessimistic about gaining a prominent place on the service.
The vast majority of money made on MySpace Music is adgenerated. This means that when an indie band gets played and the ad above it makes the company a little bit of money, some of that money is going to go to the four big labels as well.
The Gaurdian’s music blog is even asking if moves like this will drive musicians away from labels and MySpace. It hints at a new coalition similar to one that will be launched this weekend at In The City, a huge music event in Manchester, England.
Some labels aren’t so upset, though. MySpace Music has a licensing agreement with independent digital music distributor The Orchard, which carries more than 1.3 million tracks, though The Orchard did not get a stake in the business. But Orchard might not have wanted a stake, as that position allowed it to negotiate for a better advertising share on its content.
Groups will complain back and forth, but most will eventually sign on at least some content. MySpace Music needs to actually make money, though, or bigger names than the indie labels will be up in arms and speaking out to news organizations.