Can MySpace Save the Major Music Labels?
Record companies are counting on their new deal with MySpace Music to help make up for declining CD sales
by Catherine Holahan

In a small Atlantic Records Group studio in New York, rapper Clifford "T.I." Harris Jr. leans into a silver microphone. "It's the T.I.P. man, the king himself," he says. "Dig this." There's no music on this recording, though, no rhyming lyrics. The Atlanta artist simply talks in his Southern drawl, creating an audio clip that will be posted on his Web site and others across the online universe. The clip and more like it are designed to pull in fans—and generate revenues from advertising on the sites.

Meet the record label, version 2.0. After nearly a decade of plunging music sales, the labels are trying to overhaul their traditional business. Instead of just selling recorded music, they want to use music to sell a range of related extras, from online advertising to mobile phones packed with tunes. The new business model puts the Internet at the heart of the industry in an attempt to transform artist Web sites from promotional vehicles into money-making enterprises.

The biggest bet on this new model is MySpace Music. The joint venture between News Corp.'s (NWS) social networking site and the three largest record labels—Universal Music Group, Sony BMG Music Entertainment, and Warner Music—is set to launch in the next few days. The partners are expected to unveil the venture officially and name a chief executive during the week of Sept. 15. On the short list for CEO: Owen Van Natta, the former chief operating officer at Facebook, and Andy Schuon, former CEO of Universal Music's International Music Feed. MySpace declined to comment on the CEO search.

"Skin in the Game"
While the labels already work with a number of online retailers, from Amazon.com (AMZN) to Apple's iTunes, this is their most ambitious push yet to develop online advertising and e-commerce revenues. The labels will have equity stakes in the new venture. They'll also get a cut of the revenue from ads on artists' pages, as well as those from music downloads, ring tones, merchandise sales, and concert tickets. "We wanted the music companies to feel like real partners and to have some skin in the game on the upside," says MySpace.com founder Chris DeWolfe.

How much upside is the key issue. The record industry has been hammered in recent years by online piracy and a dearth of mega-hits, with sales sliding steadily since their peak of $14.6 billion in 1999. As CDs sales have dropped, the labels have tried repeatedly to develop digital strategies to make up the difference, and they've all come up short. Last year was the industry's worst yet in terms of revenue losses. The total value of digital and traditional sales dropped 12% in 2007, to $10.4 billion, compared with a 4.4% slide the year before, according to the Recording Industry Association of America (RIAA).

Record labels have high hopes that this time will be different. Michael Nash, head of digital strategy at Atlantic's parent, Warner Music Group (WMG), predicts MySpace Music and related moves will help reverse the industry's fortunes. "We will be able to return to overall growth," he says.

Cushioning the Decline
That will be a stretch, though. Even if it's successful, MySpace Music will be too small to make up for plummeting CD sales. The labels are "really dwindling," says Paul Verna, a senior analyst at market research firm eMarketer. Still, the new strategy could help the labels cushion the decline in the years ahead and perhaps begin to rebuild revenues a few years out.

The idea behind MySpace Music is that it can help generate revenue for artists every day, not just around an album's release. The venture gives the labels access to MySpace's global audience of 118 million users and its ad sales team of more than 250 people. It also provides the labels with a prominent venue to pull in audiences and advertisers with new types of nonmusic content, including music news, behind-the-scenes videos, and artist interviews such as the one with T.I.

Major advertisers are signing up. Industry sources say MySpace Music has signed multimillion-dollar ad deals with McDonald's (MCD), Toyota Motor (TM), and other major brands for its launch. Toyota and McDonald's confirmed their participation, although they wouldn't specify the ad dollars involved. Kim McCullough, Toyota's manager of marketing communications, calls the MySpace Music launch an "unprecedented opportunity."

MySpace is designed to do more than bring in ad revenue, though. It also gives the industry a new channel through which to sell songs, ringtones, T-shirts, and tickets. With 5 million artists using the site to promote their bands, MySpace has already become a major destination for discovering new music and upcoming concerts.

Model Venture?
MySpace Music can't save the industry on its own. The whole site takes in about $743 million in advertising revenue now. Make some reasonably optimistic projections about MySpace's prospects, and the record labels could end up with $1 billion in new revenue from the venture by 2012. That helps, but given the current rate of decline in CD sales, the industry could lose an additional $3 billion in yearly CD sales by that time.

Still, MySpace Music may prove to be a model for future ventures on the Net. If the concept works, it could help the labels turn other online hangouts, like the leading social networking site, Facebook, into forums for music sales and related revenues. It could also help demonstrate that the labels will see tangible benefits from new contracts under which they share in advertising, e-commerce, and merchandise sales. "If they do all that, then maybe they can stem the tide of these rapidly falling CD sales and start to see the pie get a little bigger," says Paul Verna, a senior analyst at eMarketer. "But it is definitely a big if."

The labels are experimenting with a host of new efforts beyond MySpace. One recent deal with Nokia (NOK) will let the Finnish mobile-phone maker, through its Comes With Music program, sell phones preloaded with music subscriptions. A separate deal with imeem, a Web site designed to help people discover new music, provides the labels with licensing fees and a slice of advertising revenues. "There is a larger degree of sophistication at the labels and a willingness to embrace more cool stuff," says Dalton Caldwell, imeem's chief executive.

Lack of Innovation
The labels are intent on reinvigorating music sales on the Net. Digital sales growth slowed from 74% in 2006 to 43% last year. Record executives believe that, as Apple (AAPL) has come to dominate online sales through its iTunes store, sales growth has been hurt by a lack of innovation. "I think everyone has a sober understanding that the next three years will be challenging," says Mitch Bainwol. chief executive of the RIAA. "But the long-term prognosis is outstanding."

Not everyone likes the labels' latest approach. Under new contracts, bands are being asked to give labels a cut of revenues from concert tickets and merchandise sales, instead of just from music sales. Jason Debiak, keyboardist with the band New London Fire, thinks that's a bad deal for musicians, unless the labels are going to pay for singing lessons or other development. "It's an offer that should be thrown in the garbage," he says.

Still, the major labels have made a sharp reversal that may improve their prospects. For years they fought Internet companies for fear that their music would be stolen. Now they're racing to capitalize on the new opportunities on the Web. Warner has created a special digital studio to help artists develop unique online content. And Warner artists T.I. and Grammy Award-winning rapper Missy Elliott have album releases timed to coincide with the MySpace Music launch. "The labels were very reticent to embrace change at a time when it could have actually worked to their advantage," says eMarketer's Verna. "Now there's a sense that they have no choice."

With Tom Lowry in New York. Holahan is a writer for BusinessWeek.com in New York.

HOW TO CREATE A HIT SITCOM
A simple, step-by-step guide to prime time success.

by Chuck Lorre
© April 2004

Start drinking early. I don't mean early in the day. I mean early in life. Eight years old oughta do the trick. Heavy drinking isn't necessary. All you need is enough hooch to get through a Cub Scout meeting without tearing your skin off.

Your ability to make the big bucks as a sitcom writer is directly tied to the sickness of your parents. Stop whining to your therapist and send mom and dad a thank you note for royally fucking you up.

Fail to become a member of any group worth joining. Once again, this is something you need to get an early start on. Whether it be athletics, academics or crime, make sure you don't measure up. Social rejection combined with the hard-wired damage done by your folks creates the insecurity and self-loathing necessary for a writer to "know where the funny is."

Nurture your fear of women. Long for them. Ache for them. But always keep in mind that you don't deserve them. If you should happen to get involved with one, always remember: If she loves you there is something fundamentally wrong with her. You just can't see it yet.

Don't start as a sitcom writer. Find something you love more than life itself and then fail at it. Once the reason God put you here has been revealed to be a cruel hoax, you'll be a better team player. Thoroughly defeated people are more inclined to take those tough network notes.

Don't be afraid to experiment with soul-crushing poverty. You'll find yourself ahead of the pack when it comes time to write that warm, family sitcom because you know what it means to enjoy a big bowl of ketchup soup.

Don't cheat yourself out of being a colitis patient in a rundown teaching hospital. Dealing with psychotic sitcom divas is a snap for someone who's had an anesthetic-free colonoscopy in front of twenty giggling med students.

Join a religious cult. Any cult will do. Just make sure they promise you the one thing you desperately need: power over people, places and things. When, after many years and thousands of dollars you still don't have power over your ulcerative colon, become a bitter door-to-door greeting card salesman and patiently await the day when you can sell your cult accessories on eBay.

Marry a woman who is beautiful, kind and loving and encourages you to drink.

Have a kid when you're poor and uninsured. Convincing an OB-GYN and an anesthesiologist to perform a caesarean section on credit is invaluable training for really tense pitch meetings. In fact this is such a helpful exercise, have another kid so you can do it twice.

Walk in the first door that opens. It doesn't matter if it's the door you want. Someone wants you to write shitty Saturday morning cartoons in order to sell a bunch of shitty toys? What do you care? You left your last shred of personal dignity in the teaching hospital. And your kids still don't have medical insurance. Write the damn thing and see if the check bounces. If it doesn't, write as many as you can before they find out you don't have a fucking clue what you're doing.

Ignore your ignorance and make yourself irreplaceable. Work harder than everyone else. If it helps you get through the night, con yourself into thinking that your My Little Pony script will actually impart life lessons to some snot-nosed, lead paint licking kid somewhere.

Eat staggering amounts of condescending shit from condescending assholes who don't have children and whose only hope of getting any is with candy and a panel truck.

Now that you've scratched and clawed your way into a stable, well-paying job writing Saturday morning cartoons, watch passively as your wife runs out and buys a house. There's nothing like a big mortgage to make sure you don't quit a job that has already begun to kill you.

Don't be complacent. A moving target is harder to hit. When the limited animation geniuses go home at night you stay late and write sitcom and drama spec scripts. It doesn't matter if your next job involves writing, "Hey, which one of you kids put a chicken in my pants?" Or, "We caught a floater in the East River. John Doe, shot twice at the base of the skull with a small caliber pistol. Probably a twenty-two." Your goal is to charge through the first open door that has health insurance, residuals and enough prestige to show those dickweeds in high school just how wrong they were about you.

Slowly start to destroy your marriage because of many of the unresolved issues mentioned above.

Now that you're working it's easy to get an agent. Don't dwell on the fact that the little fuckers wanted nothing to do with you when you were unemployed. Get one anyway. It doesn't even matter which one you pick. For the sake of simplicity, take the first one who says they love your writing. Don't get hung up on whether or not they're lying. You'll be firing them soon.

Get your first freelance, sitcom writing assignment for which you are paid the incredible sum of six thousand dollars. Become a proud member of the WGA for the incredible entry fee of six thousand dollars. Attend a 'new members' cocktail party and feel like you've finally joined a club worth belonging to. Enjoy the night immensely because you're blissfully unaware that the next WGA event you'll attend will require you to carry a picket sign.

Roll your freelance success into your first sitcom staff job. Sure it's an embarrassingly silly show, but you don't embarrass easily. You still have vivid memories of playing guitar and singing "Big Bad Leroy Brown" at a Filipino wedding in Long Beach for forty dollars and all the lamb kabob you can eat.

Continue to work harder than anyone else so you can't be fired. Turn in your first script which follows the executive producer's outline beat for beat. Almost get fired. Quickly write another script which follows your instincts and get an atta boy. Learn a priceless lesson that you will ignore over and over again during the course of your career.

Write four scripts in succession that are produced and get paid for none of them because "term writers don't get script fees." This is your first clue that the WGA is not completely on the ball.

Continue to eat condescending shit from condescending assholes while working fifteen to seventeen hours a day and six days a week. Discover the boundless joy of driving home when the sun is coming up. Make friends for life with the aforementioned assholes because you are now one of them.

Drink more. You can afford the good stuff now.

Notice that writers further up the food chain are quitting in frustration. Take this as an opportunity to ask for a promotion. Get one. What the hell, ask for another. Get it. Rise from term writer to supervising producer in two and a half years because you are a glutton for punishment and everyone else quit. Remember the phrase "two and a half" for later use.

After three years of miserable, seventy hour weeks someone at the network belatedly realizes that when the premise of a show is two men who have never met agreeing to live together and raise the daughter of a dead woman they both slept with twelve years ago because either one of them could be the little girl's father but no one wants to go to the trouble of taking a blood test, the show should be cancelled.

Facing unemployment, fight to get on a hit show that everyone else is fighting to get off of because the star, while undeniably talented, has a few personal issues not to mention a coke-addicted boyfriend she just made executive producer. Consider the shit you've lived through and think, "How tough could it be?"

Quickly discover that working on this show causes you to look back at the anesthetic-free colonoscopy with fond nostalgia. Sign non-disclosure forms that threaten you with dismissal and legal action if you tell anyone the truth about what actually goes on there.

Take more abuse than you ever considered possible but hang in there for two years and fifty episodes because you're making more money in a week than your father made in a year. Think to yourself, "The suffering and sacrifice of my ancestors is redeemed through my success," in order to avoid thinking, "If I'm a whore, does that make my agent a mack daddy?"

Become single again and, after an initial surge of joy and freedom, discover that she was not the reason for your misery. Oh, well, no time for self-reflection now, you're on your path to creating a hit sitcom!

Quit drinking. For almost a whole day.

Roughly nine years after walking through that first door, finally get a chance to create your hit sitcom. But it won't really be yours. You have no creative clout. Your employers have lots of clout so, ignoring the priceless lesson, rely on their series premise, their casting choices and their comic instincts. Your hit sitcom is cancelled in five weeks. Your employer calls it a "noble failure", but noble isn't the word used in any of the reviews. The word putrid is used twice.

Get back on your feet by pitching a single-camera film comedy based on Douglas Adam's "Dirk Gently's Holistic Detective Agency." Your employers think it's a swell idea but instead want you to write a sitcom about a blue collar single mom on videotape. You see little room for compromise.

Write a heart-warming script about an heroic single mom who struggles against overwhelming odds to raise her children and make a new life for herself. Fail to take into account that the gal cast by your employers to play mom, hates kids, hates people, hates sitcoms and, most importantly, hates you.

Wake up to discover you have created a hit sitcom and Ralph's doesn't sell enough Stoli to ease the pain. Find yourself looking back at the bent superstar and her twitchy consort with fond nostalgia.

Quit the hit show you created and get right to work creating another hit sitcom for another wack-job diva because you are just plain stupid. Get fired from your second hit show because the co-star wins a fucking Emmy... and you're stupid.

FINALLY learn from your mistakes and create a hit show with wonderful, loving people. Late in the second season during a rehearsal suddenly realize they are not going to hurt you.

Stop drinking.

Marry again. This time to a beautiful, warm and loving woman who encourages you to drink water.

Write a half dozen pilot scripts that are used as landfill. Write and produce three busted pilots in a row because you think you know what's wrong with TV comedy, but are really still stupid.

Then, when you're about to quit the business in disgust, write a pilot script with an old friend. Not because you like him. No one really likes him. Write it because he has two young kids, dental problems that would scare English people, and if he doesn't write something quickly he'll lose his WGA health insurance, which is something you know about. Anyway, a script is written and when it's time to come up with a title, the phrase "two and a half" effortlessly floats into your consciousness.

To everyone's surprise and delight, the script attracts an incredibly talented, easy-going, warm and generous star. The star attracts a green light. Green lights attract Jimmy Burrows. He has script notes. You have creative clout now, ignore them.

Brilliant, sane actors join the cast. A young boy who was obviously a world-class actor in a previous life and is simply picking up where he left off makes the whole thing feel like it's really going to happen.

A group of extraordinary writers overlook that you're a condescending asshole pummeling them with condescending shit and help you make a great pilot. Great pilots get killer time slots. Killer time slots get lots of viewers. Lots of viewers are required for a sitcom to be considered a hit... if the viewers come back week after week.

They come back.

Drive to your big, fancy house in your big, fancy car, drop to your knees and whisper, "Thank you, God, for showing me this simple, step-by-step guide to prime time success but couldn't we have done this without the teaching hospital?"

Share the guide with others.

Of course, I was always of the opinion that these TVT slugs WENT bankrupt to avoid paying Lil Jon all that he was owed:
Rapper signs deal with The Orchard By NEKESA MUMBI MOODY, AP Music Writer
Tue Aug 5, 5:29 PM ET

Lil Jon, who was musical limbo after his longtime record label TVT Records went bankrupt earlier this year, has reached an agreement that frees him from his TVT obligations while entering into a new venture with digital entertainment company The Orchard, which is purchasing TVT's assets.

Lil Jon will work with the Orchard's Brand Entertainment Group to develop "lifestyle-oriented marketing and promotion programs," as well as serve as a consultant for some of Orchard's artists, labels, and branding opportunities, according to a joint statement from both parties.

As part of the deal, Lil Jon withdrew his objections to TVT's sale to Orchard. In return, Orchard released Lil Jon from any contractual obligations left over from TVT and allowed him the rights to the master recordings of his upcoming album, "Crunk Rock." The Orchard also will digitally issue Lil Jon's back catalog, for which he will provide new material, according to the statement.

That means Lil Jon is still free to sign to another label as an artist.

"It's about time I get what's owed to me from the situation I was stuck in," Lil Jon said in a statement to The Associated Press. "It's unfortunate things have turned out the way they did, but artists deserve to be compensated fairly by their labels for the work they do, and that wasn't happenin'. In my case. I'm happy to finally be a free man and make a new start!"

According to Orchard, it has purchased most of TVT's assets, except for a few that are being challenged, for between $4.5 million and $6 million.

Lil Jon, together with his cohorts the East Side Boyz, has sold millions of records and helped fuel the crunk music wave a few years ago. His hits include "Get Low," and he's produced smashes like Usher's "Yeah" and Ciara's "Goodies." The Atlanta-based musician also has his Crunk!!! Energy Drink and a wine line.

The Orchard, based in New York, distributes and markets millions and songs and videos through a variety of companies.