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Okay, so I have a little OCD, but I told fellow panelists and the audience atthe 2008 Urban Network Summit that MySpace was dieing that FaceBook would overtake it.  

I was right…so to speak.

So “dieing” was a little strong, but I clarified by saying that artists’ fan base was becoming less and less enchanted by MySpace. 

I had proof…when we ran an online video site, we noticed that our viewers said they had a MySpace page, but never checked it.  They got spammed too much, even by artists they actually liked.  Most artists who visited us said they had a MySpace page because the felt like they had to.

I told the crowd that if they could find a way to market themselves on FB, then it would be time well spent, since that was where people were going.  But they should also be on MySpace since it still had a heck of a lot of traffic.

Needless to say, my fellow panelists were about to throw stones when I made my comments.  Then again, think about the best panels you’ve been to…someone said something that pissed someone else off…then the carnage.  It was awesome…

Nonetheless, Facebook is having some problems with its revised Terms of Service and who actually controls your information.  The Consumerist highlighted the issue.

Back in March, I paneled a music conference.  When we talked about social networks as a means to push artists’ music or brand, I mentioned that I thought Myspace was dieing and that it seemed like Facebook was the upstart. 

Some of the other panelists tried to crush my comment, like what I said was blasphemy.  Amazing…I just took a look at Compete.com’s numbers for both sites and seems like I wasn’t all that wrong.  I suspect that if I look at November numbers, I wouldn’t come to a different conclusion. 

My experience was that people just weren’t as enthralled with Myspace any more.  It’s yesterday’s news, to an extent.  I think it’s still valuable.  I mean, come on, it still as over 50MM uniques…how many sites can say that!

Keep in mind, that I don’t think Facebook is the long-term answer.  I think someone else will come along with a better app.  Someone always does.  That’s actually why I think the valuation of Facebook is ludicrous.  $15 billion (or whatever the latest incarnation of the valuation is) is insane – seems like that should take into long-term value, and I don’t think it’s a sustainable business…social apps don’t seem to have a long shelf-life…imo.

The battle for Middle Earth (I mean, internet advertising) is getting VERY interesting.  So you have the 400 lb sumo wrestlers in the ring (based on traffic), Yahoo & Google, each having 139 million and 137 million uniques/month, respectively.  AOL comes in 4^th (behind Microsoft) with 111 million uniques according to comScore.  

Next up, Yahoo is to use Google’s Adsense to deliver relevant ads alongside its own ads on a test basis (two weeks).  It’s looking more and more like a move to tease Microsoft just enough so that it will either increase its offer to something more acceptable to Yahoo or make them go away (how did Microsoft become the kids that no one wants to play with…more of a rhetorical question).

 So Let’s Play This Out…

No secret that a few online properties dominate online advertising, which is estimated to be about $21 billion in 2007 (online ad spending is expected to hit about $51 and about 15.4% of total media buys billion by 2012). 

So if Yahoo expands its “test” with Google and completely runs Google (which I don’t think will happen – 1) it would shift Yahoo power to Google, 2) that would allow Google to dominate in ways it doesn’t/can’t now and 3) it’s shaping up to be a bluff anyway), then that exposes advertisers to potentially more than 270 million unique visitors (or if you look at ad networks’ overall reach, a combined Yahoo and Google ad network would be 310 million uniques).

 Monopolies

That’s a heck of a lot of control over ad rates that a combined Yahoo/Google network would control.  That would force smaller players to combine, which I think will happen anyway as a defensive tactic:

1. While internet advertising is growing at a great pace, overall actual dollar spend is still finite…there’s so much money in corporate coffers, and
2. the number of online properties that can be created is infinite – thus, you have an infinite number of online properties competing for finite dollars. 

 Offline Going Online

No. 2 above, combined with internet advertising growth, is driving traditionally offline media to partner and acquire online properties. 

Radio One, the biggest urban terrestrial radio company, announced on April 10 that it is acquiring Community Connect, owner of BlackPlanet.com and AsianAve.com, for $38 million (Black Planet was one of the FIRST social networking sites, and it focused on the niche model which has gotten hot – it’s lost a little luster with the propensity for being spammy, like MySpace,  but it’s still one of the go to sites for people and studios pushing certain films).

Hearst Media, known for its offline properties (magazines, newspapers and TV stations), has been acquiring websites as well.

The Goal: offer advertising clients a greater reach off AND online.  One point of contact for a wider reach.  Of course, the main goal is to maximize revenue since terrestrial radio and magazines have been having a tough time growing revenue.

 Smaller Sites

How do smaller sites, that have a few tens or hundreds of thousands of visitors, compete? 

Get this – borrow from the big boys and merge.  If not merge, then create a network of sites that can drive pricing power with advertisers.  This could be a lot more lucrative if done right. 

 Competitive Landscape

So you basically have the following groups in this order

1. Search – Yahoo, Google, AOL
2. Traditionally offline who already are online – NY Times, LA Times, Fox Interactive
3. Large Social Networking – MySpace, Facebook, etc.
4. Traditionally offline media going online – Hearst, Radio-One
5. Smaller sites that combine to form a larger network – ?

“Don’t call it a comeback, I’ve been here for years.” – LL Cool J’s “Mama Said Knock You Out”

I gotta give it to MySpace!  Looks like they are coming up with a way to unlock the value in the site.  Based on a lot of feedback from current and former MySpace users, the current model was getting stale.   The new venture is ripped (in a good way) from the page of how to unlock intrinsic value while protecting your ass from current and future lawsuits. 

The Quicks: MySpace is spinning out its music service as a separate venture with minority shareholders being 3 of the 4 major labels: Universal Music Group, Sony/BMG and Warner Music Group (there’s some speculation that EMI will likely join given that the other 3 are in).  The deal was made on Wednesday after UMG agreed to drop its lawsuit.  The ad-supported site will offer free music and video streaming, DRM-free downloads for any device including iPods, concert ticket sales and merchandise and social networking features such as sharing customized playlists with friends.  Check these sources for more info: NYTimes, Tech-Ex and Yahoo News.

So why would they do this?  Among a few, here are three:

·        creates a formidable competitor to iTunes,

·        aligns record labels interest with MySpace’s, and

·        unlocks some value within MySpace.

 The iTunes Play

It’s no secret that iTunes is enormously popular.  In 2007, iTunes became the largest music retailer overtaking the behemoth marketplace that is called Wal-Mart.  Since iTune’s primary format is digital, then it has a pretty enormous share of the digital download market – the only part that’s actually growing (increase of 21% to 29 million downloads in 2007).

So it’s not exactly rocket science that the majors want to help mitigate the impact of one company’s (Apple’s) influence over the market. 

 The Align Interest Play

“Keep your friends close and your enemies even closer.”  That pretty much sums this one up.  With the labels having a stake in the company, their interests are aligned with MySpace’s.  Thus the threat of another Label v MySpace lawsuit is significantly reduced.  Each can make money on the mega trend of streaming content, and, at the same time, creating value (enhanced by litigation reduction – see Value Reason Play below).

Thus, it makes sense for the labels to partner with MySpace in spinning off it’s music division, since it already has a large footprint (about 30 million uniques/month and 5 million artists).  It also diversifies the labels revenue stream, which I’ve argued for before.  This is smart!!!

 The Value Reason Play

Often, spinning out a division of a company unlocks the real value of that division (i.e., the sum of the parts is greater than the whole).  Think of it this way…RJR Nabisco had tobacco and food divisions.  Tobacco, because of the litigation, limited the growth of the company’s stock price.  Consequently, the value of the food division was hindered because of the tobacco.  So RJR spun off the foods division into a separate company.  Corporate raiders of the 80s did this kind of thing all the time (buy a company on the cheap and sell off the parts and make a killing).

So maybe this is what’s being done here.  Outside of this deal, MySpace’s growth prospects weren’t looking so good.  We sampled 20 non-artists who have MySpace pages and asked if they still used it.  If not, what social networks do they used?  17 of them didn’t check their MySpace pages frequently (generally going to it once every 2-3 months).  The social network that’s grabbing 15 of them…FaceBook.  Artists still use MySpace as I found out at the Urban Network Summit a few weeks ago.  It’s still a great platform to showcase their wares.  Just that the fans don’t seem to be clamoring for MySpace the way they used to…so outside of this deal, MySpace was dieing.

So the good thing is that MySpace has a stake in the new venture that will enhance it’s own valuation. 

 What about Independent Artists?

The one thing that MySpace did was help even the playing field for independent artists.  With the majors owning a stake in the new venture, what does that do for the indie artists?  This wasn’t clear in the MySpace press release.  Logically, the labels will want to have their artists featured, but it’s the indies that really made MySpace what it is.  There’s a LOT of them and their enormous fan base.  I wonder if they’ll have to fight to get exposure.  You know?

 Btw -

I presume that the labels will not exclusively distribute their content on the MySpace music site.  I can see arguments either way, but

 Facebook

FaceBook has always been rumored to be talks with the labels to establish a similar music service.  It already has music services, but nothing to the extent of a full-feature music service (the current system is more of a application). 

We’ve written about 360 deals before.  The much rumored deal between Jay-Z (aka Shawn Carter) and Live Nation is expected to finalize this week along those lines. 

The NY Times reported that the deal is valued at $150 million.  The short of it is that Jay-Z gets what amounts to an investor in Live Nation for future ventures that he creates.  These would include record distribution, merchandising, concert ticket sales and merchandising.  Live Nation will annually fund Jay-Z’s umbrella company (that will partake in the venture) and share in the profits thereof.

The deal reflects the kinds of 360 deals that we’ve talked about, where more and more mergers and acquisitions will happen along the vertical: record labels, distribution, artist management, merchandising, advertisers, promoters, etc. 

The inevitable ‘why’ comes to mind.  Because CD sales are down, more music is becoming free or low cost, but demand appears to remain strong. 

So the best business models will seek to diversify and capture different streams of revenue, presuming that core demand is still there. 

 What’s more interesting is that LiveNation is positioning itself as the ‘GE’ of music. 

Live Nation could have its hand in just about every aspect of music (rather entertainment).  Investing in Live Nation could be like investing in a mutual fund for entertainment.  Distribution, concert tix sales, merchandising, promotions, the whole nine. 

 Logical Next Step

What would be interesting is to see Live Nation partnering/acquiring a company in the web 2.0 space, like a distributive media company (e.g., widgets), a virtual world like Doppelganger’s vSide or the next FaceBook kind of social media company. 

It would make sense when looking at the mega trends of more people spending time online, TONS of dollars going in online advertising, online services, etc.

Live Nation appears to be building such a model.  It acquired Music Today, a one stop shop for merchadising, fan club building and more for artists.  Live Nation has been partnering with several companies to develop its online presence, like Last.FM.  Full acquisition might be the next step.

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Further, it is marking its territory to become the better record label model.  It already wooed Madonna from Warner.  Now, Jay-Z is leaving Def Jam.  This is particularly interesting since Live Nation has historically focused on rock and country.  

I asked a couple of record labels about possible acquisitions as a revenue strategy, but maybe it could be basic business strategy to ward off companies like Live Nation.  Most said they really hadn’t thought it through.  But a few are realizing the game is changing and it’s not really about entertainment, but a basic business policy that creates allies everywhere to further the mission of the company.  I’ll write more on this later. 

Fascinating!!!

I was on a digital media panel at the Urban Network Summit last week.  Various subjects were broached but I kinda got fed up of MySpace being tossed around as the be all/end all social media platform for artists. 

First shot came from me: ”MySpace is dieing.  People are looking for a more intimate interaction.  People are on MySpace because they have to be.  MySpace is spammy and you can boost up your numbers with bots.  Facebook is where things are headed.”

You should have heard the ruckus!  Heads immediately shot in my direction.  One fellow panelist took it personally.  The room, almost at capacity, even got anxious as a result.

Return fire (from the fellow panelist): You’re kidding!  MySpace has millions of visitors.  In fact, how many people use MySpace? (about 70% of audience)  How many people use FaceBook? (about 30%).  See.  How can you say MySpace is dieing???

Blast back (from me): I’m not saying don’t use MySpace.  Should be on all platforms.  But still, look at the growth rates.   FaceBook is growing at lot faster pace than MySpace.  FaceBook is where MySpace was 1-2 years ago, in terms of growth rates.  But people aren’t going back 1-2 times a day on MySpace as they are for FaceBook.  MySpace is played, from a fan perspective. 

I felt good since some people came up to me afterwards and got what I was saying.  But I think the “use all social media platforms” idea was lost.

 For Fans

People aren’t going to MySpace as much to socialize.  Too much spam.  That’s why they’re going to FaceBook.  I have friends from 23-34 in age who log onto MySpace MAYBE once every 2-3 months.  They say they’re tired of MySpace.  FaceBook, because of the closed model, can only allow friends to chat and post on their page.  It’s more meaningful.  What MySpace was.

It’s about quality of friend interaction, not quantity.

But I have to admit, FaceBook was NOT intuitive when I first signed on.  The only reason why I spent time learing it was because I thought I had to.  I have yet to work my MySpace page though. 

 For Artists

Being all social networks is one of the best, low-cost ways of getting noticed…after all, that’s the main thing for young artists.  Now that FaceBook has plans for launching music and video players for artists, FaceBook becomes a lot more appealing.  Having a lot of people sharing your video/audio on FaceBook probably means more than on MySpace – fans here are more likely to be REAL fans. 

 For Record Labels

Labels want to know who’s hot.  The problem with MySpace is that you can’t really rely on MySpace for friend counts, title plays or views.  You have to gauge.  The problem with FaceBook is that it’s a closed model, so you can’t get exposed to new content as easily.  Although, the people playing the content will probably be real people.. 

An interesting play would be a technology that could aggregate all plays, views, votes from all social networks.  Imagine a dash board where you can see anyone’s total plays on FaceBook, MySpace, Veoh, FunnyorDie, or any other site that lists, most watch, most popular, newest. 

That would be hot and usable by everyone. 

But let me offer a few pros/cons.