Excerpted from BusinessWeek, “Can MySpace Save the Major Music Labels?”, by Catherine Holahan, September 12, 2008
* * * * *
The major music labels have made a sharp reversal that may improve their prospects. For years they fought Internet companies for fear that their music would be stolen. Now they’re racing to capitalize on the new opportunities on the Web. “The labels were very reticent to embrace change at a time when it could have actually worked to their advantage,” says eMarketer’s Paul Verna. “Now there’s a sense that they have no choice.”
* * * * *
Meet the record label, version 2.0. After nearly a decade of plunging music sales, the labels are trying to overhaul their traditional business. Instead of just selling recorded music, they want to use music to sell a range of related extras, from online advertising to mobile phones packed with tunes. The new business model puts the Internet at the heart of the industry in an attempt to transform artist Web sites from promotional vehicles into money-making enterprises.
The biggest bet on this new model is MySpace Music. The joint venture between News Corp.’s (NWS) social networking site and the three largest record labels—Universal Music Group, Sony BMG Music Entertainment, and Warner Music—is set to launch in the next few days.
* * * * *
This is the label’s most ambitious push yet to develop online advertising and e-commerce revenues. The labels will have equity stakes in the new venture. They’ll also get a cut of the revenue from ads on artists’ pages, as well as those from music downloads, ring tones, merchandise sales, and concert tickets.
The record industry has been hammered in recent years by online piracy and a dearth of mega-hits, with sales sliding steadily since their peak of $14.6 billion in 1999. Last year was the industry’s worst yet in terms of revenue losses. The total value of digital and traditional sales dropped 12% in 2007, to $10.4 billion, compared with a 4.4% slide the year before.
* * * * *
The idea behind MySpace Music is that it can help generate revenue for artists every day, not just around an album’s release. The venture gives the labels access to MySpace’s global audience of 118 million users and its ad sales team of more than 250 people. It also provides the labels with a prominent venue to pull in audiences and advertisers with new types of non-music content, including music news, behind-the-scenes videos, and artist interviews such as the one with T.I.
Major advertisers are signing up. Industry sources say MySpace Music has signed multimillion-dollar ad deals with McDonald’s (MCD), Toyota Motor (TM), and other major brands for its launch. MySpace is designed to do more than bring in ad revenue, though. It also gives the industry a new channel through which to sell songs, ringtones, T-shirts, and tickets.
* * * * *
MySpace Music may prove to be a model for future ventures on the Net. If the concept works, it could help the labels turn other online hangouts, like the leading social networking site, Facebook, into forums for music sales and related revenues. It could also help demonstrate that the labels will see tangible benefits from new contracts under which they share in advertising, e-commerce, and merchandise sales. “If they do all that, then maybe they can stem the tide of these rapidly falling CD sales and start to see the pie get a little bigger,” says Verna, “But it is definitely a big if.”
Edit by DAF
* * * * *
Full article:
http://www.businessweek.com/print/technology/content/sep2008/tc20080912_717914.htm
* * * * *
Want more from the Homa Files?
Click link => The Homa Files Blog
* * * * *
The Homa Files 
Leave a comment