But DeWolfe and Anderson consider the music business to be their ripest opportunity. About nine months ago, with 10 senior staffers in tow, they held a daylong off-site in L.A. to map out their future. They came away with a heady list of priorities: a significant site redesign, the long-awaited developer’s program, and a beefed-up mobile business (an iPhone application debuted in July).
Music, though, quickly bubbled to the top of their to-do list. “When we first started MySpace, we were a site that a lot of bands, tastemakers, and influencers immediately gravitated to,” DeWolfe recalls. For musicians trying to make a deal with a major label, or just fill up a venue, it became a perfect way to self-promote and digitally mingle with fans. (We can thank MySpace for accelerating the careers of Lily Allen, Sean Kingston, the Arctic Monkeys, and Dane Cook, among others.) But that area of strength had been allowed to atrophy. As DeWolfe says, “We hadn’t innovated much around the music portion of MySpace in about three years.”
After the off-site, DeWolfe put in a call to famed record producer Jimmy Iovine of Interscope to bat around ideas. Back in 2005, MySpace had partnered with Iovine to launch its own label, MySpace Records, which was set up to identify and recruit unsigned acts using the site. Iovine’s unexpected but inspired suggestion: Call Doug Morris. “If you want to get into the business, you have to get Doug,” says Iovine. The CEO of music label Universal, Morris was a most unlikely ally at the time—his company had a nasty copyright-infringement lawsuit pending against MySpace. But Morris also had another thorn in his side: Steve Jobs. Just a few months earlier, Morris had convinced two other major music labels, Warner and Sony, to try an end run around iTunes by launching their own subscription service. That effort had foundered, in part because of serious rumblings of antitrust concerns. As an outsider, DeWolfe had an opportunity to broker an agreement without triggering legal problems. The day after talking to Iovine, he got on a plane and flew to New York to meet Morris.
Morris listened. And over the ensuing months, DeWolfe and his team managed to bring Warner and Sony back into the mix, in a joint venture called MySpace Music. (Along the way, MySpace settled the Universal suit, coughing up a rumored $100 million.) On the face of things, the venture—which was slated to launch in September but at press time had yet to name a CEO—will offer the major labels their best hope for a significant competitor to Apple’s iTunes store. DeWolfe is quick to say that isn’t the point. “We didn’t set out to annoy Steve Jobs or compete with him,” he insists. “This was not conceived as an iTunes killer.” Anderson points out that iTunes itself isn’t much of a moneymaker, anyway: Apple is really a hardware company, not a media company, he says, even if iTunes does control about three-quarters of the digital download market. And Jobs has burned a lot of bridges with the labels, especially over his reluctance to embrace variable pricing—charging more for newer or more popular music. MySpace may not want to kill iTunes—it says its music site will actually boost iPod sales—but the labels wouldn’t cry if it happened.
Although technically a separate company, MySpace Music is very much DeWolfe’s baby, and its CEO will report to a board that reports to him and Anderson. The new site promises to let people listen to and share streaming songs from a full catalog of music for free, as MySpacers do now with video—but also create playlists and buy ringtones, merchandise, and concert tickets. And of course, buy music. The majority of MySpace Music’s tracks will be offered without digital-rights management, which will allow them to play on an unlimited number of devices, including the iPod. And expect variable pricing. The idea is to create an environment where people will buy more music rather than steal it.
Bits and pieces of MySpace’s music model can be found in other places—such as iMeem, Pandora, iLike, Last.fm, Live Nation, and, yes, even Facebook. But once you factor in MySpace’s distinctive mix of entertainment content and social-networking power, the proposition gets more interesting. As Michael Nash, EVP of digital strategy and business development for Warner Music, puts it, “Unlocking the social value in the context of an online community is one of our most important priorities.” Nash, who is on the board of the new venture, worked with MySpace in its pre-Murdoch days, developing promotions with acts including REM. “About 20% to 30% of total traffic on MySpace is music traffic,” he says. “We saw that lightning in a bottle, the social interaction around music and fans.”
For Nash, the MySpace deal may be just the thing to save the music industry from destruction, at least for a while. “The traditional music model has really already sort of expired,” he admits. “We were seeing tremendous value in our content, but not a lot of revenue being developed.” The dream: As users begin to organize music they like into streaming playlists that can be shared with friends (and that other users can vote up, Digg-style, or subscribe to), the computer becomes a community-generated radio. Supported by advertising. And with the already existing MySpace swirl around celebrities and events, the industry envisions hordes of fans flocking to concerts, which are much easier to profit from. “We needed a completely different business model to unlock that value,” Nash says. He admires DeWolfe and the MySpace team for uniting competitors into a venture benefiting all. Rupert’s bags of cash didn’t hurt, either: “That News Corp., a major media company with deep industry knowledge, has been there to monetize all of this really deepened our commitment.”
As for the potential competitors, such as iMeem, who have built their businesses partly on the social networks—and have helped establish them as music destinations—Nash is coy. “You can assume that we’re in discussions with all the significant players in the space, including Facebook, YouTube, iMeem.” But, he says, “it’s a competitive world. There’s going to be some overlap, but you’re not going to see a lot more joint ventures.”
