Future Of Music

MySpace had everything it needed to establish a truly revolutionary music model. Loads of indie artists and millions of fans all interacting online on the MySpace platform and the opportunity to connect them and enable commerce. Bands could post their tracks and sell them directly to their fans, all that was really missing was a better way to promote the music. This was the hard work that MySpace failed to do.

As the LA Times reported yesterday, MySpace Music relaunches, tries to turn up revenue volume with loads of major label content and a partnership with Amazon.

“Although MySpace was a pioneer in giving unsigned musicians a voice, the social network struggled to leverage that momentum into a revenue-generating business. (Well actually it didn’t really try that hard. A failed experiment with the defunct SnoCap was about it, because they sure didn’t share any banner advertising revenue with anyone).

Details of the new MySpace Music are now as familiar as the lyrics to any hit pop tune. MySpace’s 120 million worldwide users will be able to create and share playlists, as well as listen to songs or albums in its digital catalog for free. If users want to put the tracks on a portable music player, they need to buy them through Amazon.com.

However, this revamped MySpace Music falls short of the comprehensive one-stop online music store DeWolfe described last spring when he announced the service. At that time, he promised that music aficionados could not only listen to and purchase songs but also buy concert tickets or a band’s T-shirt.

Instead, MySpace went for the basics. Users will be able to search for music by artist, song title or album, then place it on a playlist that can hold as many as 100 tracks. The songs can also be added to a shortened playlist on a MySpace profile page, where others can hear it. Other features will be added over time.

The playlist is hardly an innovation. Other online services, such as the start-up Imeem and Last.fm, which is owned by CBS, offer free streaming and ways for friends to share their virtual mix tapes. These smaller rivals say they’re not worried about the competitive threat from MySpace, noting that they had a head start.

“Retrofitting an older legacy online service is like trying to turn the cargo ship toward the more nimble speedboat,” said Steve Jang, chief marketing officer at Imeem.

“There are 120 million unique users every month on MySpace,” DeWolfe said. “It’s the largest music community in the world.” (Well it is debatable whether slapping major label content on MySpace makes it the ‘largest music community in the world’ – but we will see.)

Most of the revenue for MySpace Music, at least early on, will come from advertising. Music industry executives hope that a global audience will lure advertisers eager to reach a youthful, music-loving demographic. (Oh great – McDonalds here we come).

The music industry could use fresh sources of revenue to supplement traditional CD sales, which have fallen precipitously since 2000. CD shipments in the U.S. are down 46% (that’s right) over the last seven years, and digital sales haven’t come close to making up that shortfall, according to the Recording Industry Assn. of America’s statistics.

All four major music labels — Sony BMG, Universal Music, Warner Music and EMI — together own a 40% stake in MySpace Music, so they stand to gain financially if the venture attracts enough advertising. Moreover, the labels hope that by creating a social environment where people can discover music, they’ll be more likely to buy it.

But by aligning itself with the corporate music establishment, MySpace risks losing its “indie” feel, said Dave Kusek, vice president of Berkleemusic.com, the online extension school for the Berklee College of Music in Boston. “It’s a complete 180 on their part, in terms of where they came from and what made them so cool, and really what attracted their initial audience,” Kusek said.”

Read the LA Times article here.

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Here is an excerpt from an email sent by the indie conglomerate “The Orchard” to their members yesterday, explaining why – once again – the indie artist is excluded from this big media play. Some things never change. Seems to me like the Orchard “got sprayed”.

“The major labels received equity in MySpace Music. Despite our best and ongoing efforts, MySpace Music executives have indicated that independents as a sector will not receive equity. If equity is ever given to independents, The Orchard has assurances that our clients will be included. We will continue to press the issue with MySpace management on behalf of all independents, not just our clients, as we disagree with the decision of MySpace and do not feel it is an enlightened perspective towards the independent sector. And, to the extent we find future success, we reiterate a point we made before, which is: if we ever secure equity for you, it will all go to you;

While we don’t agree with MySpace’s position, we do believe there is bigger opportunity at play and that “equity” can be a red herring when compared to getting fair rates as far as percent of ad sales (which is where we see the real value of this service in the long run). We have secured aggressive commercial terms on your behalf, and we think this is most important;

The revenue potential from MySpace Music, and from this new type of ad-supported business, will take place over the long term. Money won’t start flowing overnight. And, the potential of this service rests in the hands of you: the artists and labels. Like the so-called “Long Tail”, it won’t magically occur, but instead, is simply a possibility. The more you and/or your artists engage with MySpace Music, and get your fans to engage, the more money you’ll make;

We do not believe the service will be cannibalistic to the a la carte download market but see it as an entirely new and complementary form of value creation. In the long term (meaning, more like 5 years, and not 5 months!), we believe it will evolve into a larger industry segment than exists currently in the format-based world.”

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Ok, so here’s the bottom line. MySpace takes a vibrant community of musicians (5 million) and fans (120 million) and sells the whole thing out to the major labels for a 40% cut. No equity available for indie labels or artists. Any be sure of this – the equity owned by the major labels will not find its way to any of their artists. Big media wins again.

Rather than trying to encourage the direct-to-fan model that they once touted as they encouraged indie artists to post their music and develop their friends – MySpace hands it all over to the combine. THIS IS NOT THE FUTURE OF MUSIC.

Here’s an email from Trent Reznor of Nine Inch Nails to his fans. Here is a band that is inventing their own future and building their fan base directly. Take note, this is how it is done… Awesome. (Thanks to Mike King for this one).

Subject: Nine Inch Nails survey

Message from Trent:

Hello everyone. I’d like to thank everyone for a very successful year so far in the world of Nine Inch Nails. I’m enjoying my couple of weeks off between legs of our Lights In The Sky tour and got to thinking… “wouldn’t it be fun to send out a survey to everyone that’s shown interest in NIN?” Well, that’s not exactly how it went, but regardless – here it is. As we’ve moved from the familiar world of record labels and BS into the unknown world of doing everything yourself, we’ve realized it would benefit us and our ability to interact with you if we knew more about what you want, what you like, what you look like naked, etc. I know it’s a pain in the ass but we’d truly appreciate it if you’d take a minute and help us out. As an incentive, everyone who completes the survey will be able to download a video of live performance from this most recent tour (and I know what’s going through your little minds right now: “I’ll just grab this off a torrent site and not have to fill out the survey!!!” and guess what? You will be able to do just that and BEAT THE SYSTEM!!!! NIN=pwn3d!!!) BUT What if we were to select some of those that DO complete the survey and provide them with something really cool? I’m not saying we’ll ever get around to it, but if we did maybe something like signed stuff, flying someone to a show somewhere in the world, a magic amulet that makes you invisible, a date with Jeordie White (condoms supplied of course), you know – something cool. See, you’d miss that opportunity AND be a cheater. Do the right thing – help us out. You’ll feel better.

Thank you and I’ve had too much caffeine this morning, Trent

You wanna take the survey? Click here.

Want to know what’s up with new music startups? Read on. Great coverage by Paul Bonanos from The Deal. So good to see mainstream financial coverage of our music industry.

Striking a chord

A decade after Napster, a new crop of Internet startups is challenging the music industry’s dominant companies. Their instruments of choice: social networking, discovery, ad-supported streaming, marketing and other tools that change how business is done.

Source: Tech Confidential

U.K.-based We7 Ltd., which has drawn funding from British musician Peter Gabriel, along with VC firms Eden Ventures and Spark Ventures plc, both of London, offers free songs that contain short advertisements that vanish after a few weeks. We7 recently added songs from a third major label, while SpiralFrog signed up only two of the four majors, meaning that finding free songs can still be something of a wild
goose chase.

Nashville’s NoiseTrade, a bootstrapped startup, provides a way for artists to give away music in exchange for the e-mail addresses of prospective new fans, while angel investor-backed TrueAnthem Corp. of San Francisco connects brand advertisers with musicians, who introduce tunes with short, personalized ads.

Consumers less inclined to possess a virtual copy of a song also have more options. That includes subscribing to libraries of music content and Web sites that allow streaming songs on demand and limited downloading. Publicly traded RealNetworks Inc. of Seattle has emerged as a clear leader among such products with its Rhapsody service, while the existing Napster, which purchased its trademark from the original bankrupt startup, has lost subscribers and remains far from profitable. Both companies offer several tiered plans, ranging from roughly $10 to $15 per month, that provide access to millions of songs from all four major labels, as well as “tethered downloads,” or DRM-restricted files that expire once a customer cancels his subscription.

The market for free music “streamed” on a Web site is more complex, with some startups relying on subscription services to supply songs through their own user interfaces. Most streaming services are married to some other Web utility, whether a social networking site, music discovery service or
paid-download store.

With investment from VC firms Sequoia Capital and Morgenthaler Ventures, both of Menlo Park, Calif., as well as from Universal Music and Warner, social music site Imeem Inc. of San Francisco has built the fastest-growing free streaming service. All four major labels now supply music to Imeem, which lets users play songs on demand.

Imeem’s growth highlights the pressure on “old music” companies, like other old media firms, to change with the times. And the legal battles between upstart music firms and incumbents have been no less intense than the fights in other quadrants of the media industry, such as the ongoing court dispute between Google Inc. and Viacom Inc. over the search giant’s use of protected video on YouTube. Warner sued Imeem in 2007 over alleged copyright infringement, only to later buy a stake in the startup after settling the case.

“Sometimes a lawsuit is foreplay to a licensing deal,” says Norwest Venture Partners principal Tim Chang of startups’ path to legitimacy in the age of free music. “They infringe so that users get what they want and advertisers pay attention, scale so that you have some leverage against labels, get sued and then settle.”

The digital-music business is entering a phase common to many emerging high-tech sectors. The land rush of startups that follows any significant technological shift, such as file sharing, is already starting to thin out as winners stake their claims and losers get consolidated, if they’re lucky, or simply disappear.

For example, Last.fm rival Pandora Media Inc. faces a fight for survival despite having attracted prominent venture investors and a slew of good publicity. The Oakland, Calif., startup employs music experts to create a recommendation “engine” for Internet radio. But an upcoming regulatory change that will result in a doubling of streaming royalty rates for Web radio companies could spell the company’s doom unless it elects to charge users a subscription fee or finds a way to add advertising that its audience will accept.

Like Pandora and Last.fm, music discovery site iLike Inc. of Seattle has become popular, if not consistently profitable. One key to its success in attracting users has been its availability over Facebook Inc. of Palo Alto, Calif., through which more than half of its 30 million users connect to the service. Through a partnership with Rhapsody, iLike allows users to stream as many as 25 songs per month and download selected others for free while examining their friends’ tastes and recommendations. The startup has raised $15.8 million in two rounds of funding from former Time Warner Inc. executive and MTV co-founder Bob Pittman, star venture capitalist Vinod Khosla, and the Ticketmaster unit of IAC/InterActiveCorp of New York.

“There’s a natural propensity for social networking and music to go together,” says MySpace founder Brad Greenspan, who left the social network in 2003. “When you’re surfing people’s profiles and everything starts to look the same, the only way to differentiate among them is their individualization. And if you add an image of an artist on a site, you will bring in people who want to be close to that musician’s energy, whether by blogging, chatting, befriending or following them.”

Drawing on such desires, music-blogging hub MOG Inc. of Berkeley, Calif., wants to tap into fans’ efforts to spread the word about their favorite artists. Universal and Sony BMG joined the Angels’ Forum of Palo Alto in putting $6 million into the startup, which compiles the musings of volunteer bloggers writing on given musicians and bands. MOG, which also offers on-demand music, represents a one-stop version of the musical blogosphere, where songs are commonly shared without compensation for content owners.

Also harnessing the power of the blogosphere are music-focused search engines such as the bootstrapped Hype Machine Inc. of New York and angel-backed Seeqpod Inc. of Emeryville, Calif., which index thousands of music blogs where MP3s often reside for a few weeks so users can sample them.

Another area where Internet startups are encroaching on the record labels’ turf is marketing. Launched this summer, Los Angeles-based Topspin Media Inc. enables artists and fans to communicate directly, offering a sort of customer management technology package for musicians that allows sales of songs, albums and merchandise. Under one subscription option offered through the company, a fan can pay a flat fee for a musician’s entire recorded output over the coming year — income a musician might otherwise have to share with a label. Venture investors are on board, with Topspin having raised funding from Redpoint Ventures of Menlo Park and Foundry Group of Boulder, Colo.

But rampant music piracy continues to dwarf legitimate sales, cutting label revenues by as much as half since the mid-1990s. Meanwhile, work that had long been the province of music companies has been gradually appropriated by newer, fleeter Internet companies or, as with marketing, “disaggregated” out of existence. Other competitors also have emerged. LiveNation Inc. of New York, a publicly traded live music promotion company spun out of Clear Channel Communications Inc. in 2005, has signed top acts, including U2 and Madonna, and has sweetened its deals by letting artists maintain ownership of their material.”

If so, what will the business look like? A dying era of superstar acts may give way to a music scene carved into myriad niches, with proliferating media channels creating room for more voices — the “middle class” of artists, as Rogers puts it. Artists and fans will operate in closer proximity, with more tools in place to help them connect.

How, then, will music derive its commercial value, and where should investors place their bets? The future is likely to include more sponsorship and patronage. Imagine liquor companies, fast-food joints and other advertisers paying the band of the moment for rights to its music before it’s recorded rather than after it hits the charts. Alternatively, rich benefactors — or legions of fans — could support artists in exchange for early access to a new album or even a shout-out in the liner notes. Tie-ins with other media such as video games will also create opportunities: People may not buy the album for $15, but they’ll pay $39.99 for the “Guitar Hero” version.

The old ways, reinvigorated by technology, are made new again.

Read the complete article at The Deal.

Want to know what’s up with new music startups? Read on. Great coverage by Paul Bonanos from The Deal. So good to see mainstream financial coverage of our music industry.

Striking a chord

A decade after Napster, a new crop of Internet startups is challenging the music industry’s dominant companies. Their instruments of choice: social networking, discovery, ad-supported streaming, marketing and other tools that change how business is done.

Source: Tech Confidential

U.K.-based We7 Ltd., which has drawn funding from British musician Peter Gabriel, along with VC firms Eden Ventures and Spark Ventures plc, both of London, offers free songs that contain short advertisements that vanish after a few weeks. We7 recently added songs from a third major label, while SpiralFrog signed up only two of the four majors, meaning that finding free songs can still be something of a wild
goose chase.

Nashville’s NoiseTrade, a bootstrapped startup, provides a way for artists to give away music in exchange for the e-mail addresses of prospective new fans, while angel investor-backed TrueAnthem Corp. of San Francisco connects brand advertisers with musicians, who introduce tunes with short, personalized ads.

Consumers less inclined to possess a virtual copy of a song also have more options. That includes subscribing to libraries of music content and Web sites that allow streaming songs on demand and limited downloading. Publicly traded RealNetworks Inc. of Seattle has emerged as a clear leader among such products with its Rhapsody service, while the existing Napster, which purchased its trademark from the original bankrupt startup, has lost subscribers and remains far from profitable. Both companies offer several tiered plans, ranging from roughly $10 to $15 per month, that provide access to millions of songs from all four major labels, as well as “tethered downloads,” or DRM-restricted files that expire once a customer cancels his subscription.

The market for free music “streamed” on a Web site is more complex, with some startups relying on subscription services to supply songs through their own user interfaces. Most streaming services are married to some other Web utility, whether a social networking site, music discovery service or
paid-download store.

With investment from VC firms Sequoia Capital and Morgenthaler Ventures, both of Menlo Park, Calif., as well as from Universal Music and Warner, social music site Imeem Inc. of San Francisco has built the fastest-growing free streaming service. All four major labels now supply music to Imeem, which lets users play songs on demand.

Imeem’s growth highlights the pressure on “old music” companies, like other old media firms, to change with the times. And the legal battles between upstart music firms and incumbents have been no less intense than the fights in other quadrants of the media industry, such as the ongoing court dispute between Google Inc. and Viacom Inc. over the search giant’s use of protected video on YouTube. Warner sued Imeem in 2007 over alleged copyright infringement, only to later buy a stake in the startup after settling the case.

“Sometimes a lawsuit is foreplay to a licensing deal,” says Norwest Venture Partners principal Tim Chang of startups’ path to legitimacy in the age of free music. “They infringe so that users get what they want and advertisers pay attention, scale so that you have some leverage against labels, get sued and then settle.”

The digital-music business is entering a phase common to many emerging high-tech sectors. The land rush of startups that follows any significant technological shift, such as file sharing, is already starting to thin out as winners stake their claims and losers get consolidated, if they’re lucky, or simply disappear.

For example, Last.fm rival Pandora Media Inc. faces a fight for survival despite having attracted prominent venture investors and a slew of good publicity. The Oakland, Calif., startup employs music experts to create a recommendation “engine” for Internet radio. But an upcoming regulatory change that will result in a doubling of streaming royalty rates for Web radio companies could spell the company’s doom unless it elects to charge users a subscription fee or finds a way to add advertising that its audience will accept.

Like Pandora and Last.fm, music discovery site iLike Inc. of Seattle has become popular, if not consistently profitable. One key to its success in attracting users has been its availability over Facebook Inc. of Palo Alto, Calif., through which more than half of its 30 million users connect to the service. Through a partnership with Rhapsody, iLike allows users to stream as many as 25 songs per month and download selected others for free while examining their friends’ tastes and recommendations. The startup has raised $15.8 million in two rounds of funding from former Time Warner Inc. executive and MTV co-founder Bob Pittman, star venture capitalist Vinod Khosla, and the Ticketmaster unit of IAC/InterActiveCorp of New York.

“There’s a natural propensity for social networking and music to go together,” says MySpace founder Brad Greenspan, who left the social network in 2003. “When you’re surfing people’s profiles and everything starts to look the same, the only way to differentiate among them is their individualization. And if you add an image of an artist on a site, you will bring in people who want to be close to that musician’s energy, whether by blogging, chatting, befriending or following them.”

Drawing on such desires, music-blogging hub MOG Inc. of Berkeley, Calif., wants to tap into fans’ efforts to spread the word about their favorite artists. Universal and Sony BMG joined the Angels’ Forum of Palo Alto in putting $6 million into the startup, which compiles the musings of volunteer bloggers writing on given musicians and bands. MOG, which also offers on-demand music, represents a one-stop version of the musical blogosphere, where songs are commonly shared without compensation for content owners.

Also harnessing the power of the blogosphere are music-focused search engines such as the bootstrapped Hype Machine Inc. of New York and angel-backed Seeqpod Inc. of Emeryville, Calif., which index thousands of music blogs where MP3s often reside for a few weeks so users can sample them.

Another area where Internet startups are encroaching on the record labels’ turf is marketing. Launched this summer, Los Angeles-based Topspin Media Inc. enables artists and fans to communicate directly, offering a sort of customer management technology package for musicians that allows sales of songs, albums and merchandise. Under one subscription option offered through the company, a fan can pay a flat fee for a musician’s entire recorded output over the coming year — income a musician might otherwise have to share with a label. Venture investors are on board, with Topspin having raised funding from Redpoint Ventures of Menlo Park and Foundry Group of Boulder, Colo.

But rampant music piracy continues to dwarf legitimate sales, cutting label revenues by as much as half since the mid-1990s. Meanwhile, work that had long been the province of music companies has been gradually appropriated by newer, fleeter Internet companies or, as with marketing, “disaggregated” out of existence. Other competitors also have emerged. LiveNation Inc. of New York, a publicly traded live music promotion company spun out of Clear Channel Communications Inc. in 2005, has signed top acts, including U2 and Madonna, and has sweetened its deals by letting artists maintain ownership of their material.”

If so, what will the business look like? A dying era of superstar acts may give way to a music scene carved into myriad niches, with proliferating media channels creating room for more voices — the “middle class” of artists, as Rogers puts it. Artists and fans will operate in closer proximity, with more tools in place to help them connect.

How, then, will music derive its commercial value, and where should investors place their bets? The future is likely to include more sponsorship and patronage. Imagine liquor companies, fast-food joints and other advertisers paying the band of the moment for rights to its music before it’s recorded rather than after it hits the charts. Alternatively, rich benefactors — or legions of fans — could support artists in exchange for early access to a new album or even a shout-out in the liner notes. Tie-ins with other media such as video games will also create opportunities: People may not buy the album for $15, but they’ll pay $39.99 for the “Guitar Hero” version.

The old ways, reinvigorated by technology, are made new again.

Read the complete article at The Deal.