April 4, 2008
By JEFF LEEDS and BRAD STONE
SAN FRANCISCO — 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 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.
Copyright 2008 The New York Times Company