MySpace Rocks And Rolls With New Music Store

MySpace, the world's largest social networking site, has decided the time is right to compete with Apple's iTunes. Buffeted by its huge subscriber base and support from all four major music labels, MySpace hopes to force its way into the music downloading business by offering a mix of downloads, ringtones and concert tickets.

The launch date of MySpace's unlimited download service has been widely speculated on, and was officially announced Thursday. In addition to unlimited streaming music, MySpace users will have access to entire music catalogs and merchandise.

The social network said in April that three of the four major labels—Universal Music Group, Sony BMG Music Entertainment and Warner Music Group—had all agreed to back the plan. The lone holdout was EMI Music, the fourth largest music company, which did not sign onto the deal until hours before launch.

MySpace music also brought The Orchard, a distributor of independent music from smaller labels, into the fold.

Each label has agreed to take an equity stake in the service based on the size of their company. This means that Universal will have the largest stake in MySpace's music business, while EMI will grab the smallest piece of the pie.

The MySpace partnership with the labels is just the latest attempt by the music industry to cope with flagging sales, with everyone looking to take a bite out of Apple's iTunes. Earlier this year, Verizon Wireless unveiled a partnership with Rhapsody for music downloads to mobile phones. This week, SanDisk rolled out slotMusic, a plan to sell albums on microSD cards on a USB sled. SanDisk also received backing from all four major music labels. Wednesday, Sony Ericsson rolled out Play Plus Now, a mobile music download program.

The simple fact is that everyone in the industry is scrambling to find a way to compete with iPods and the iTunes store. Apple said earlier this year that more than 4 billion songs have been downloaded through the service, making it the largest music retailer in the business. The revenue Apple realizes has to be frustrating to music labels that are seeing their business eroded by online music downloads.

It's well known that labels generally operate under a bad business model. They throw money at a large number of artists that they very often never see again. Instead, the companies bet on a handful of acts to explode onto the scene with an album and recoup the losses incurred by the other bands. That money used to come from CD sales, with the label slicing out the majority of the profit and only providing small royalty margins to artists.

But CDs aren't selling. More and more paying customers download single songs and pay for them individually—when they pay for them at all. What's most surprising is how long it has taken labels to truly react and revolutionize their distribution and profit model.

First it was the RIAA suing hapless college students in dorm rooms, which brought more ill will than profit. But partnerships like the one announced with MySpace at least shows that the companies are maturing and trying to understand the problem. By taking advantage of established online communities—and perhaps some ad revenue—music labels are hoping to see a profit again.

Whether or not teaming with MySpace is the right measure or if it will help rejuvenate the bottom line remains to be seen, but at least it is something.