Record Labels Betting on MySpace Music

Sam Gustin writes: The recording industry is in dire straits. Compact disc sales are falling, illegal file-sharing is rampant -- despite aggressive efforts to stamp it out -- and the industry has seen what was a $15 billion business shrink to $10 billion over the last decade.

That's why the industry has so much riding on MySpace Music, the new joint venture between the giant social network and three of the big four record labels, which was originally announced in April and is expected to formally launch within days.

MySpace Music is a partnership between News Corp.'s Fox Interactive Media division, Sony BMG, Universal Music Group, and Warner Music Group, which together account for about 70 percent of the music market. Negotiations with EMI, which controls just under 10 percent of the market, are said to be ongoing.

"MySpace Music is a joint venture between us and the labels, not just a commercial relationship, so they will be invested in seeing this succeed," Jeff Berman, MySpace's president of sales and marketing told Portfolio.com. The company has been tight-lipped about the financial details of the joint venture, but reports have circulated that the company is looking at raising $100 million at a valuation of $2 billion.

The major labels are hoping that MySpace Music will weaken the hold that Apple's iTunes music store currently has on the legal online music market. MySpace currently has over 120 million users world wide, and already over 5 million artists and bands use the social network to promote their music.

The service will offer users free, ad-supported streaming music from the labels' catalogs, as well as sell MP3 downloads without digital copy protection that users can store on their computers and play anytime. The companies also hope to make money by selling concert tickets, ringtones, T-shirts, and other music related merchandise

Earlier this year, MySpace chief executive Chris DeWolfe said the service would create a "360-degree revenue stream" for the social network and the labels. "In the past, the music industry has done a great job of finding new artists and turning them into big brands, but they've only really capitalized on CD sales," DeWolfe said. "What we're doing is monetizing that brand in five or six different ways."

In preparation for launch, MySpace Music has lined up some powerful brand sponsors. On Monday, the service will announce four major advertising partnerships with McDonald's, Sony Pictures, State Farm, and Toyota. The companies' advertising campaigns on MySpace Music will be "deeply integrated" into the site and "go beyond the banner," Berman said.

For the record labels, MySpace Music represents an attempt to try to capitalize on the emerging digital music economy, rather than snuff it out. Over the last decade, the Recording Industry Association of America, which represents the labels, has been on a mission to crack down on illegal file sharing, suing, or threatening to sue, some 30,000 people for digital piracy.

Just last month, the RIAA shut down Muxtape, a popular music site that allowed users to upload songs in the form of playlists and then offer them to friends. MySpace Music will offer a similar feature, which will allow users to build playlists and distribute them across the Web.

MySpace Music faces challenges, not least of all the fact that it doesn't have a chief executive at present. The search has reportedly been narrowed down to two candidates, Andy Schuon, a former executive at Universal Music Group, and Owen Van Natta, a former top executive at MySpace rival Facebook.

Also, the company is launching in an increasingly competitive ad-supported, streaming music market. Last December, social music site imeem struck deals with the four major labels to offer access to their catalogs. Imeem has grown significantly since then, approaching 30 million active users. Although somewhat late to the game, MySpace Music is hoping to stop imeem in its tracks, and then launch an assault on iTunes.