MySpace Milks Music for Monetization

Site Builds on Its Specialty to Take On Competition

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NEW YORK (AdAge.com) -- Will MySpace save the music industry? Or will the music industry save MySpace?

Just as many had begun to pen an obit for the social-networking site thanks to a flat-lining user base and the trials of monetizing social networks via ad revenue, the company is building on its original strength and promising to build out a major music-selling service. The service won't traffic just in song tracks but also tickets, merchandise and ringtones with fees, ads and sponsorships as sources of revenue.
MySpace Music: Area has 30,000 members already.
MySpace Music: Area has 30,000 members already.

There's still money in music
It's a lucrative market, underscored by the fact that Apple's iTunes recently overtook Wal-Mart as the top music retailer, according to NPD Group. Digital-music sales totaled $2.8 billion domestically and $4.5 billion worldwide in 2007, per eMarketer, and those figures are set to increase to $5.7 billion domestically and $14.8 billion worldwide by 2011. But perhaps more important for the site, it signals a return to its roots—and relevance.

"We started a music community four years ago, and in the last year and a half, we hadn't done a lot to improve it," said Chris DeWolfe, CEO and co-founder of MySpace. "So we made a decision that music would be one of our core pillars."

He said the company started doing lots of focus groups, talked to lots of people and collaboratively built a business plan with the record companies around the utopian idea of a music service that handles all aspects of the industry. MySpace Music is a joint venture among the News Corp.-owned site, Sony BMG Music Entertainment, Universal Music Group and Warner Music Group.

"Modern music is about letting the users define their own experience, and I don't think that was happening, because the music industry couldn't find a way to make money in that," he said. (MySpace execs are fond of using the phrase "360-degree experience" to describe the forthcoming site.)

Plan includes ad revenue streams
Another area in which the music focus will help MySpace: Advertising.

While the site has successfully boosted its notoriously low CPMs with its interest-based targeting strategy, social networks are still difficult places to monetize. Having a media-friendly music service will increase the programs MySpace can offer marketers. Mr. DeWolfe said MySpace could let marketers sponsor certain areas of the site, playlists, song downloads and live shows. He cited an event with Linkin Park and My Chemical Romance that State Farm presented and MySpace's "secret shows," in which sponsors underwrote secret events and MySpace members were notified just days before.

And unlike other entries into the ad-supported music market, which have yet to prove successful business models, MySpace has "a core competency with online ad sales," Mr. DeWolfe said. "That's not an easy thing to develop. There's technology associated with that, there's training, there's feet on the ground."
Chris DeWolfe
Chris DeWolfe

Forrester Analyst James McQuivey likes the move because, he said, "it recognizes that consumers don't just buy music; they experience it, which is a much larger concept. They share, they discover, they heckle, they even use it to provide self-identify. That's what people do with music already on MySpace. If MySpace and the music labels do it correctly, consumers will be able to touch on every aspect of their music experience in one place."

Starting big
Already MySpace has a huge head start in terms of audience: its worldwide unique visitors totaled 109 million in January, according to ComScore, and there are 30,000 members of the MySpace Music area already.

Still, Mr. McQuivey is bearish on MySpace's ability to take on market leader iTunes -- at least in the short term --thanks to the strength of Apple's devices.

Separately, Fox Interactive Media, MySpace's parent division, announced a reorganization of its ad-sales team late last week, creating a FIM Audience Network, which will focus on performance advertising and monetization and license some of its technology to third parties. Branded ad sales will be folded back into their individual properties, such as MySpace and IGN. As part of the reorganization, FIM Chief Revenue Officer Michael Barrett is leaving the company.

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Contributing: William Hupp
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