The Future of Music in the Web 2.0 Era
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SAN FRANCISCO -- CDs and even vinyl may never disappear, but their decline as music distribution systems doesn't mean that digital downloads are the key to record companies' survival either.
At least, that's the sentiment by two players in the music industry and how it's increasingly found and consumed: Chris DeWolfe, CEO of MySpace, and Edgar Bronfman, chairman and CEO of Warner Music Group.
DeWolfe and Bronfman took the stage at the Web 2.0 Summit this week to discuss the partnership between MySpace Music and Warner Music Group (WMG) (announced in April), and the future of the music industry.
The key is MySpace's huge community of users and its notification system that lets friends know when someone has uploaded a tune, DeWolfe told the event's program chair, John Battelle.
"People can pick from millions of songs and upload them, and their friends get a message when they do," DeWolfe said. This could alleviate the problem labels have of breaking unknown artists, because the viral element combined with a friend's implicit or explicit recommendation can be more effective.
"MySpace provided the perfect ecosystem," said Bronfman.
Bronfman has always been keen to set himself apart from more traditional music executives regarding emerging business models with music in the digital era. As early as 2001, he said that it was possible that the entire catalogs of all music labels would be available online. Back then, he was vice chairman of the wannabe media powerhouse Vivendi Universal and fresh from the acquisitions of Farmclub.com, GetMusic.com, EMusic and MP3.com.
Later that year, Sony Music Entertainment and Universal Music Group (a division of Vivendi Universal) launched pressplay, a joint venture to offer online subscribers access to the music vaults of some of the largest music entities in the industry, including eight independent labels.
But pressplay, and its rival MusicNet, never caught on. The licensing regime was too complicated, and, compared to illegal downloading services, the selection of music was weak. The partnership was sold off to Roxio in 2003.
So, why MySpace Music? Why now?
"We wanted to come up with a system that worked for all segments. Starting with Napster, there was always a misalignment between consumers, artists and music companies," DeWolfe said.
Earlier this week, MySpace added another building block in such a system, announcing plans to use a video identification technology developed by Auditude to identify and insert ads over any video clips produced by MTV Networks that are found on MySpace. Auditude's technology also works with audio content, which may lay the groundwork for another revenue stream for Warner content.
Bronfman acknowledged that the MySpace deal was an indicator that WMG was getting over the digital rights management question. MySpace music users will be able to reuse and share the music however they want. After resisting such usage for years, and backing the Recording Industry of America's lawsuits against file-sharing consumers, Bronfman said, "The world changed. Media became social media. In order to have content and for it to be shared in a meaningful way, there needs to be a standard. And there was no way to have a standard in the world of the CD."
Therefore, he continued, WMG accepted the fact that it wasn't the CD that it should necessarily try to monetize.
He believes that no one channel will replace the CD. "It will take a whole series of different business models and different channels."
For example, all of Warner Music Group's new artist contracts are what it calls "360-degree deals." In return for developing and promoting artists, WMG gets a piece of everything, including merchandise, concert tickets and sponsorships.
"We used to have three SKUs: a single, a video and an album. Now we have literally hundreds of SKUs when we release music," Bronfman said. In fact, 20 percent of WMG's revenues now come from digital.
Despite the avenue MySpace and other social networking and music sites offer unsigned bands to develop an audience, Bronfman said there still will be a role for record labels.
"Not much talent is born fully formed in someone's bedroom," Bronfman said. "We spend time and money on artists to take them to their full potential. Finding the right producer, helping with writing. We might spend years getting from bedroom to finished product."
The bottom line for WMG, Bronfman said, is "we're trying to adapt to reality."
Update corrects earlier version regarding Auditude's capability to also handle audio-only content.