MySpace Faces the Music - TheStreet

MySpace Faces the Music

News Corp.'s hot Web property may get a second chance to be a pop music kingmaker.
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MySpace, the wildly popular Web property owned by

News Corp.

(NWS) - Get Report

, is getting a second chance at fulfilling a longtime dream: selling music made by bands that call MySpace their online home.

Back in early 2005, before the world of people over 25 years old woke up to the huge phenomenon that MySpace would be, the company talked a lot about content distribution.

But it wasn't just content as in promotional videos for movies and TV shows, and an MP3 or two uploaded by individual bands. It meant full-blown content, as in albums for sale by bands that had drawn a substantial following among the growing pool of MySpace users.

MySpace, in other words, dreamed of becoming a music label.

MySpace hit a crossroads that summer when News Corp. offered to buy it for $580 million. It could use its relationships with up-and-coming bands as leverage to become an overnight indie label, or it could continue to grow as a social-networking site.

Partly because its owner at the time,

Intermix Media

, had just settled with then New York Attorney General Eliot Spitzer's office over a

high-profile spyware investigation, MySpace chose to go with News Corp.

In so doing, MySpace shelved its dreams of promoting and selling music. In a way, it was too bad -- click-throughs on social sites like MySpace are so low that it limits ad revenue, which could have been beefed up by music sales.

And other music sites like

Apple's

(AAPL) - Get Report

iTunes thrived without becoming a haunt for sexual predators -- a theme that has haunted news coverage of MySpace for months.

Maybe it's because of the News Corp. ownership, but it seems that MySpace has been constrained in launching a truly robust music label. It did start something called MySpace Records in late 2005, but the main release was simply a compilation of MySpace success stories, most of which had signed with other labels.

More recently, however, MySpace has been conspiring to get the next best thing -- a chance to sell music from a wide array of independent music labels -- thanks to some recent partnerships.

Last year, MySpace signed an alliance with

Snocap

, a start-up created by angel investor Ron Conway and

Napster

(NAPS)

founder Shawn Fanning. The deal allows unsigned bands to use Snocap's technology to upload and sell music through the bands' MySpace pages, offering them a higher cut of the revenue than they would get at most labels. MySpace and Fox Interactive took an undisclosed stake in Snocap when that deal was announced.

Through Snocap, bands can set up a virtual store and place it on different Web sites. MySpace is a logical choice for many unsigned bands, some 3 million of which already have a presence on the site, which they use to keep fans up to date on concerts and news.

Adding a store where those fans can buy MP3s without playback restrictions (free of digital rights management) seems like a logical step, even if they are retailing for 93 cents a song (eMusic, another store where indie tracks are sold, sells songs for 25 cents apiece.) Unlike songs sold through Apple's iTunes shop, these MP3 songs will play on any digital music player.

Of course, most of those 3 million unsigned bands will never have many sales, but MySpace has helped launch artists who have hit the big time, including My Chemical Romance, Arctic Monkeys and Fall Out Boy.

Last weekend, things got a boost from news that Snocap and MySpace are extending their partnership to embrace Merlin, a recently formed music-licensing agency set up to represent independent music labels. Merlin is a sister organization of the World Independent Network, a trade group of labels around the world, including indie champions such as Matador Records and Epigraph Records.

Those smaller labels have been much more amenable to selling their digital wares through sites like eMusic that offer DRM-free songs. By banding together, they could use sites like MySpace to generate strong digital music sales on terms more favorable to consumers and artists alike. The major labels, already suffering from declining CD sales, might then feel pressure to adopt the same, consumer-friendly sales tactics.

Merlin claims that the independent labels it professes to represent make up 29% of the global music market and 82% of new music releases.

It remains to be seen if a trade group of independent labels can organize into a powerful voice that can reshape the rules of music retailing, or whether it will be a futile exercise in herding cats. The low-key tone of the announcement had a diffident feel to it, as if Merlin was more of a collective aspiration than a coherent battle plan.

But it's worth watching MySpace to see how and whether it capitalizes on the second chance to be a player in music retailing that Snocap and Merlin are offering.

Who knows, this may just turn MySpace into a kingmaker like MTV was in the '80s and '90s, resigning its origins as a social-networking site to a chaotic footnote in its history.