The Future of Music in the Web 2.0 Era

MySpace, music

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.

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