MySpace Music

A major shift occurred in the music industry this past week. MySpace Music was officially launched as a Joint Venture between the major record labels and MySpace. Users will be able to stream ad-supported music for free and create playlists. Billboard magazine said this is “the most ambitious attempt to profit from free full-song streaming based on advertising.”

MySpace Music will be operated as a separate Joint Venture from the regular MySpace service. It is speculated that the major record labels (Universal, Warner, Sony, EMI) have roughly a 40% stake in the JV. In exchange for this equity stake, the labels dropped the standard $0.01 per play licensing fee for streaming music online.

The way that the artists and labels will be paid for this is as a % of the website’s ad revenue calculated by the number of times the artist’s music is played. Then the labels will also have their equity stake. A major controversy for the site so far is that independent labels have been omitted from equity ownership. So, in practice, the major labels will receive money from their equity stake based upon ad income from independent label artists. That is sure to make many people mad.

So what does this mean for the music industry? People have been securing free music for a long time now. I think the most important change here is that there is a unified front on the part of the record labels to accept a completely new business model in exchange for company equity or revenue share. Just think of that change. They are forfeiting and/or reducing licensing costs for equity. They are banking their future on this working.

And speaking of the revenue share, MySpace is leaving quite a bit of potential revenue on the table. Instead of keeping the following items in-house, MySpace Music is outsourcing its music sales to Amazon, it’s ringtone sales to Jamster, and its merchandise sales to a company to be determined in the near future.

I will continue to blog about the changes that this MySpace Music service is having on the music industry.

Stay tuned,
Erik
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