Can MySpace Save the Major Music Labels?
In a small Atlantic Records Group studio in New York, rapper Clifford "T.I." Harris Jr. leans into a silver microphone. "It’s the T.I.P. man, the king himself, " he says. "Dig this." There’s no music on this recording, though, no rhyming lyrics. The Atlanta artist simply talks in his Southern drawl, creating an audio clip that will be posted on his Web site and others across the online universe. The clip and more like it are designed to pull in fans—and generate revenues from advertising on the sites.
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. The partners are expected to unveil the venture officially and name a chief executive during the week of Sept. 15. On the short list for CEO: Owen Van Natta, the former chief operating officer at Facebook, and Andy Schuon, former CEO of Universal Music’s International Music Feed. MySpace declined to comment on the CEO search.
"Skin in the Game"
While the labels already work with a number of online retailers, from Amazon.com (AMZN) to Apple’s iTunes, this is their 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. "We wanted the music companies to feel like real partners and to have some skin in the game on the upside, " says MySpace.com founder Chris DeWolfe.
How much upside is the key issue. 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. As CDs sales have dropped, the labels have tried repeatedly to develop digital strategies to make up the difference, and they’ve all come up short. 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, according to the Recording Industry Association of America (RIAA).
Record labels have high hopes that this time will be different. Michael Nash, head of digital strategy at Atlantic’s parent, Warner Music Group (WMG), predicts MySpace Music and related moves will help reverse the industry’s fortunes. "We will be able to return to overall growth, " he says.
Cushioning the Decline
That will be a stretch, though. Even if it’s successful, MySpace Music will be too small to make up for plummeting CD sales. The labels are "really dwindling, " says Paul Verna, a senior analyst at market research firm eMarketer. Still, the new strategy could help the labels cushion the decline in the years ahead and perhaps begin to rebuild revenues a few years out.
Source: http://www.businessweek.com
Labels:advertising, sales, MySpace, MySpace Music, online, group, years, music, digital, labels, music group, industry, revenues, universal music, venture, record, online advertising
