MySpace vs. The Labels

by on September 5, 2006 · 82 comments

MySpace is getting into the music market. And to help set them apart from the pack, they’ve opted for a decentralized approach: anyone can offer their music via MySpace, and pricing is controlled by the artist. Moreover, MySpace has opted to offer the music in MP3 format, unencumbered by DRM.

Joe at TechDirt gets the implications of this exactly right:

while many of these music stores are simply iTunes clones, MySpace is trying something different. It’s going to offer a way for bands to sell music directly to fans from their MySpace pages. Furthermore, the songs aren’t DRM’d so they’re not tied to a particular device, and the band controls the price at which they’re sold. Bands are already building up followings on MySpace, but have lacked a way to turn popularity into commercial success. This store will try to solve this problem. Predictably, there’s already talk of whether MySpace can unseat the dominance of Apple in the digital music space, but that misses the point. It’s the record labels themselves that should feel threatened. Not only has MySpace already given young bands an avenue to reach the masses, without a label to pay for their promotional campaigns, but now it’s giving them more control over their distribution as well. The value added by signing with a label is clearly diminishing, and their fortunes are likely to follow.

The labels’ traditional strengths were in distribution and marketing. Their distribution advantage is effectively gone, at least among the under-40 crowd that mostly listens to music on their iPods. And their promotional advantage is fading as more young people find new music on the Internet rather than traditional broadcast media.

As a result, the labels are largely coasting on inertia. Because they’ve got contracts with the vast majority of popular artists, people are in the habit of looking to them for new music. That, in turn, makes their artists more likely to succeed, which in turn makes the best artists more likely to seek contracts from them. It’s a virtuous cycle that’s allowed them to continue to dominate the music charts even as their distribution and promotional network is rapidly rendered obsolete.

But the momentum won’t continue forever. Sites like MySpace will make it ever easier for bands to find fans without the help of the labels. And once a substantial fraction of rock stars aren’t beholden to the labels, the labels’ remaining advantages will evaporate. At that point, their high overhead and history of hostility toward their customers will come back to haunt them. Consumer are likely to find getting music on MySpace to be cheaper, more convenient, and more interactive. And once bands can reach their fans directly, why bother with the middleman?

  • http://www.codemonkeyramblings.com MikeT

    Mi dispiace, ma io non parlo qualche francese. Ti piace si scrivo in Italiano?

  • http://www.techliberation.com/ Tim Lee

    What is going to stop a “mirror” P2P site from setting up, automatically downloading each new song that comes onto MySpace, and then making those files available for free to users. That way, a song only needs to be bought once, and then distributed without limitation to other users.

    Noel, there are already P2P sites that do this. They’re illegal now, and they’ll continue to be illegal after MySpace launches its service. To be blunt, this is an incredibly obvious point that has been made repeatedly by me and others. If you have trouble understanding it, I don’t see any point in continuing this thread.

  • http://weblog.ipcentral.info/ Noel Le

    ***The moral sense of stealing from a large corporation is very different than stealing from an individual artists.***

    OK, Robinhood, what happens when individual artists become big time stars. Eh? Is there a cut-off for when its “morally” right or wrong to steal from them. Perhaps MySpace should advertise this on its site so artists can feel protected from being ripped off as long as they’re living in their cars.

    So, Enigma, tell me. Will the MySpace business model work at all with DRM-protected files. I know MySpace is hosting files w/o DRM, but perhaps a competitor will rise up, and offer MySpace’s low margins w/ DRM. Who do you think artists will flock to.

  • http://weblog.ipcentral.info/ Noel Le

    OK, I guess I was too optimistic about your business forecasts.

    You finally got at what I was after all along: that your business concept would facillitate piracy exponentially: all you have to do is lure the little artists to hand over their hard work, promise them you’ll treat them better than the big bad guys in Hollywood, take their songs, and while they’re lamenting over piracy to magnitudes never seen by mankind, you gleefully talk about how you proved that music services can work without DRM and how you brought the labels down.

    Who wins? It doesn’t sound like you’re looking after the artists. This whole thread was essentially a criticism of DRM on your part, clothed in a business prediction that you prettied up in language about low margins and freedom of artists from the Studios.

  • http://www.techliberation.com/ Tim Lee

    You finally got at what I was after all along: that your business concept would facillitate piracy exponentially.

    Noel, that’s completely nonsense, and I said nothing of the sort. Please stop putting words in my mouth.

  • http://www.codemonkeyramblings.com MikeT

    Noel, in answer to one of your questions, artists are frequently shafted by the record labels. I recall a case where Eliot Spitzer forced a few of them to pay out over $50M in royalties they hadn’t paid but owed, to their signed artists. The ability to engage in a competitive, friendlier environment alone is good for many of them, arguably a lot better than what they have now. Not that many bands are actually very successful under the current recording model anyway.

    I think that the only solution to piracy is to treat it as a minor property crime. I’d assess a $1.00 per pirated file fine with no limit. That would give local and state governments ample reason to protect the property rights of the stakeholders while taking back ground from expansionist copyright holders who want new legislative restrictions on technology and private physical property rights.

    That said, I too remain dubious as to whether a MP3-based model with no DRM could work in the absence of consistent policing by local and state agencies. I’ve seen too many people just be dishonest about all of it, even once they got jobs that pay quite well.

    Now, my challenge to you and your peers at the PFF is, why not abandon your support of laws like the DMCA in favor of state-level reforms that treat mass piracy as felony grand theft? Which do you think is more likely to drive that stuff home harder, the DRM and DMCA or a felony conviction for grand theft?

  • http://www.codemonkeyramblings.com MikeT

    Noel, so how about those state property laws? If copyright is property, why not apply state property laws to copyrighted goods? That’d bring in an impressive array of protections for copyright holders that wouldn’t conflict with other natural rights.

  • http://www.techliberation.com/ Tim Lee

    How will your business model be profitable for artists beyond their current revenue streams. Why will they switch. You spend more time downplaying the effects of piracy than you do explaining the viability of your new incentives and profit model.

    The “business model” is that people pay artists for downloads. I don’t understand why you think that won’t be profitable. You suggest that MP3s “may” be more likely to be pirated, but you don’t offer any reason for thinking that. Yes, it’s harder to buy a CD than an MP3, but once you’ve bought it, the piracy risks are identical. So if you think selling MP3s isn’t a viable business model, how do you explain the continued sales of CDs?

    As for why artists would switch: they’d switch because more efficient distribution methods mean that the artist gets a bigger cut of the profits. An artist only gets a few pennies when their song is purchased on iTunes. They’re likely to get a lot more from MySpace. In addition, without the burdens of DRM, more customers are likely to buy music online.

  • http://weblog.ipcentral.info/ Noel Le

    I think the idea can pull a profit, to what extent though I’m not sure.

    OK, so now the question turns to whether there will be any limitation on piracy. You’re saying there will be no piracy cops…

    What is going to stop a “mirror” P2P site from setting up, automatically downloading each new song that comes onto MySpace, and then making those files available for free to users. That way, a song only needs to be bought once, and then distributed without limitation to other users.

    I can’t imagine a music service that offered absolutely zero DRM protection meeting its maximum profit potential. Thats beside the point for now. But why not offer users the choice to either buy a DRM protected file for a bit less, or non-DRM files for a bit more. This gives artists more options, and more importantly, may give them extra security and incentive to make their content available.

  • http://www.codemonkeyramblings.com MikeT

    Tim, given the overwhelming domination of the iPod and iTunes, what makes you think that most people even notice or care about DRM? I would be more inclined to say that the reason why online buying is not as popular is that most people are still accustomed to owning a CD and associate a download with a cheap knock off.

  • http://weblog.ipcentral.info/ Noel Le

    MikeT, can you re-write your previous post in French?

  • http://www.codemonkeyramblings.com MikeT

    Mi dispiace, ma io non parlo qualche francese. Ti piace si scrivo in Italiano?

  • http://www.techliberation.com/ Tim Lee

    What is going to stop a “mirror” P2P site from setting up, automatically downloading each new song that comes onto MySpace, and then making those files available for free to users. That way, a song only needs to be bought once, and then distributed without limitation to other users.

    Noel, there are already P2P sites that do this. They’re illegal now, and they’ll continue to be illegal after MySpace launches its service. To be blunt, this is an incredibly obvious point that has been made repeatedly by me and others. If you have trouble understanding it, I don’t see any point in continuing this thread.

  • http://weblog.ipcentral.info/ Noel Le

    Mike, uhhh, please wait for another thread. I will say this though, there is a lot of benefit in uniform federal IP laws.

    I actually don’t see a need for any natural rights analysis for copyright. I hope Jim Harper doesn’t jump on me right now, but I view copyrights in-line with most other regulatory policies: strictly utilitarian (http://weblog.ipcentral.info/archives/2006/09/digital_copyrig_2.html).

  • http://weblog.ipcentral.info/ Noel Le

    OK, I guess I was too optimistic about your business forecasts.

    You finally got at what I was after all along: that your business concept would facillitate piracy exponentially: all you have to do is lure the little artists to hand over their hard work, promise them you’ll treat them better than the big bad guys in Hollywood, take their songs, and while they’re lamenting over piracy to magnitudes never seen by mankind, you gleefully talk about how you proved that music services can work without DRM and how you brought the labels down.

    Who wins? It doesn’t sound like you’re looking after the artists. This whole thread was essentially a criticism of DRM on your part, clothed in a business prediction that you prettied up in language about low margins and freedom of artists from the Studios.

  • http://www.techliberation.com/ Tim Lee

    You finally got at what I was after all along: that your business concept would facillitate piracy exponentially.

    Noel, that’s completely nonsense, and I said nothing of the sort. Please stop putting words in my mouth.

  • http://www.codemonkeyramblings.com MikeT

    Noel, so how about those state property laws? If copyright is property, why not apply state property laws to copyrighted goods? That’d bring in an impressive array of protections for copyright holders that wouldn’t conflict with other natural rights.

  • http://www.codemonkeyramblings.com MikeT

    Whatever you say. I thought I would bring it up since we are discussing the issue of piracy and it strikes me as the only taboo among strong IP supporters.

  • http://weblog.ipcentral.info/ Noel Le

    Mike, uhhh, please wait for another thread. I will say this though, there is a lot of benefit in uniform federal IP laws.

    I actually don’t see a need for any natural rights analysis for copyright. I hope Jim Harper doesn’t jump on me right now, but I view copyrights in-line with most other regulatory policies: strictly utilitarian (http://weblog.ipcentral.info/archives/2006/09/d…).

  • http://www.codemonkeyramblings.com MikeT

    Whatever you say. I thought I would bring it up since we are discussing the issue of piracy and it strikes me as the only taboo among strong IP supporters.

  • http://enigmafoundry.wordpress.com/ enigma_foundry

    OK, Robinhood, what happens when individual artists become big time stars. Eh? Is there a cut-off for when its “morally” right or wrong to steal from them. Perhaps MySpace should advertise this on its site so artists can feel protected from being ripped off as long as they’re living in their cars.

    So Noel, there you go again putting words in my mouth. I didn’t say that it was right to steal from a large corporation, I just said that people, in general are much more reluctant to steal from an individual than from a large corporation. I was simply observing a FACT. Then, after I have the facts I analyze them. In this case, I believe that individual artists will be somewhat less prone to being ripped off than corporate owners of IP would be.

    So, Enigma, tell me. Will the MySpace business model work at all with DRM-protected files. I know MySpace is hosting files w/o DRM, but perhaps a competitor will rise up, and offer MySpace’s low margins w/ DRM. Who do you think artists will flock to.

    Probably which ever gives them the better revenues or exposure, because artists need both.

    Regarding the revenue issue I would strongly suggest you look at
    this post over at Freedom to Tinker. It seems that even when University paid in full for music subscriptions, students still preferred to use good old P2P to get DRM-less files. So there’s a good chance that DRM-less files will be able to support a higher price point. Also, I seem to recall that an artist recently released both a DRM and a DRM-less file of a song, with a higher price for the DRM-less version.

    See, Noel, you keep on framing this in terms of what benefits the producers but the internet empowers consumers more than producers, so I keep pointing out the power of the consumers. Yes, there is always a balance, but you’re still seeing the market the way it was..

  • http://enigmafoundry.wordpress.com eee_eff

    OK, Robinhood, what happens when individual artists become big time stars. Eh? Is there a cut-off for when its “morally” right or wrong to steal from them. Perhaps MySpace should advertise this on its site so artists can feel protected from being ripped off as long as they’re living in their cars.

    So Noel, there you go again putting words in my mouth. I didn’t say that it was right to steal from a large corporation, I just said that people, in general are much more reluctant to steal from an individual than from a large corporation. I was simply observing a FACT. Then, after I have the facts I analyze them. In this case, I believe that individual artists will be somewhat less prone to being ripped off than corporate owners of IP would be.

    So, Enigma, tell me. Will the MySpace business model work at all with DRM-protected files. I know MySpace is hosting files w/o DRM, but perhaps a competitor will rise up, and offer MySpace’s low margins w/ DRM. Who do you think artists will flock to.

    Probably which ever gives them the better revenues or exposure, because artists need both.

    Regarding the revenue issue I would strongly suggest you look at
    this post over at Freedom to Tinker. It seems that even when University paid in full for music subscriptions, students still preferred to use good old P2P to get DRM-less files. So there’s a good chance that DRM-less files will be able to support a higher price point. Also, I seem to recall that an artist recently released both a DRM and a DRM-less file of a song, with a higher price for the DRM-less version.

    See, Noel, you keep on framing this in terms of what benefits the producers but the internet empowers consumers more than producers, so I keep pointing out the power of the consumers. Yes, there is always a balance, but you’re still seeing the market the way it was..

  • Doug Lay

    Such anger and resentment from the PFF corner over this new MySpace initiative!! I wonder why? MySpace is clearly a capitalist organization acting in their own self-interest. I thought this was something to be celebrated?

  • Doug Lay

    Such anger and resentment from the PFF corner over this new MySpace initiative!! I wonder why? MySpace is clearly a capitalist organization acting in their own self-interest. I thought this was something to be celebrated?

  • eric

    As for the “Robin Hood” question — I am generally in agreement with enigma. I think it has something to do with the golden rule. Many perceive that the major labels have been cheating both customers (note the number of class action suits and actions against them by attorneys general) and the artists in their employ (note the iTunes example I gave in an earlier response). As such it is easy to build up an antagonism to the point that a customer won’t feel much guilt receiving a copied CD-R or free MP3 file.

    On the other hand, independent artists who have been very generous in giving their work out, engender in listeners an equal and opposite reaction. We want to support those artists. For example, Jill Sobulehas regularly been giving away a rotating selection of album and live tracks on MP3 at her website for many, many years. I go out of my way to buy a new copy of her albums.

    There is a psychology to all this that goes beyond mere economics.

  • eric

    As for the “Robin Hood” question — I am generally in agreement with enigma. I think it has something to do with the golden rule. Many perceive that the major labels have been cheating both customers (note the number of class action suits and actions against them by attorneys general) and the artists in their employ (note the iTunes example I gave in an earlier response). As such it is easy to build up an antagonism to the point that a customer won’t feel much guilt receiving a copied CD-R or free MP3 file.

    On the other hand, independent artists who have been very generous in giving their work out, engender in listeners an equal and opposite reaction. We want to support those artists. For example, Jill Sobulehas regularly been giving away a rotating selection of album and live tracks on MP3 at her website for many, many years. I go out of my way to buy a new copy of her albums.

    There is a psychology to all this that goes beyond mere economics.

  • http://weblog.ipcentral.info/ Noel Le

    Its not anger over MySpace Doug. I wish them good luck. If they drive down prices, I’ll buy their songs.

    Its the way folks hype MySpace up as the downfall of the studios, and using it as an excuse to argue against DRM, when they obviously don’t care about artists (the producers) and the revenue model is still questionable. Its funny that even if something like MySpace had to offer DRM options to artists to let them pull bigger profit, most on this board would argue against that (because artists and profits are not their main goals, bringing down the studios and ridding DRM are).

    ***Noel, you keep on framing this in terms of what benefits the producers but the internet empowers consumers more than producers***

    Hmmm, well what do consumers have without producers, and visa versa. You have to consider both sides, and here the incentives of artists are not adequately considered.

  • http://www.codemonkeyramblings.com MikeT

    I never saw any evidence that people were less likely to not support small bands than they were the large corporate ones. I saw no shortage of small bands’ songs in my peers iPods and computers that they didn’t pay for in college. None of them were so poor that they couldn’t have bought the stuff.

  • http://weblog.ipcentral.info/ Noel Le

    Its not anger over MySpace Doug. I wish them good luck. If they drive down prices, I’ll buy their songs.

    Its the way folks hype MySpace up as the downfall of the studios, and using it as an excuse to argue against DRM, when they obviously don’t care about artists (the producers) and the revenue model is still questionable. Its funny that even if something like MySpace had to offer DRM options to artists to let them pull bigger profit, most on this board would argue against that (because artists and profits are not their main goals, bringing down the studios and ridding DRM are).

    ***Noel, you keep on framing this in terms of what benefits the producers but the internet empowers consumers more than producers***

    Hmmm, well what do consumers have without producers, and visa versa. You have to consider both sides, and here the incentives of artists are not adequately considered.

  • http://www.codemonkeyramblings.com MikeT

    I never saw any evidence that people were less likely to not support small bands than they were the large corporate ones. I saw no shortage of small bands’ songs in my peers iPods and computers that they didn’t pay for in college. None of them were so poor that they couldn’t have bought the stuff.

  • eric

    OK Mike. Perhaps I give people too much credit.

  • eric

    OK Mike. Perhaps I give people too much credit.

Previous post:

Next post: