Can Free Music Save MySpace?

(originally posted at Brooding Savage)Â

In my last article, I explored the feasibility of a streaming music service by MySpace. The conclusion is that MySpace definitely has the traffic and ad inventory to make the business profitable. Unfortunately MySpace also has some financial problems that make the business not quite so cut-n-dry.

(This is part 2 of my 2-part series on MySpace and ad-supported music services. Read part 1 here.)

Let’s do some math:

MySpace’s overall advertising revenues in the United States reached approximately $525 million in 2007. But in the same period, MySpace served about 40 Billion monthly pageviews. Assuming that each page has space for 5 ads, that’s about 2.4 trillion ad impressions for the year. Assuming a conservative CPM of $2, MySpace should have made $4.8 billion in advertising.

Based on MySpace’s reported revenues, their actual CPM is $.24. But that’s not accurate either. Most of MySpace’s revenues comes indirectly, such as through their Google search relationship. In reality, MySpace rates have been reported to hover around $.01 CPM.

Why did MySpace fall short more than $4 billion in ad revenues last year, and why is their CPM 1/200th of what it should be?

Lots of reasons, but mostly because there’s little demand for advertising on MySpace — or on Social Networks in general. Advertisers are shy about appearing in the pages next to content that is often inflammatory, inappropriate, or just plain stupid. Add to that the enormous glut of inventory (2.4 trillion impressions!) and the net result is lots of traffic that can’t be monetized.

MySpace should acknowledge that it’s member profiles are basically not monetizable. Their revised strategy should then be to leverage the profiles as a means to drive members to high-value services.

The ability to sell ads on Social Networks has become such an glaring problem that Google openly acknowledged in it’s January earnings call that they have been unable to figure out how to monetize traffic on social networks.

MySpace didn’t earn $4.8 billion last year because they didn’t serve 2.4 trillion ads. In fact, they eliminated a huge portion of their advertising inventory. If you go to MySpace today, you’ll likely find page after page where all ads have been removed. If they hadn’t, they would have seen the value of the company’s advertising deflate to almost nothing, destroying their hopes for profitability.

Is Music the Solution?

MySpace has the potential to generate sufficient revenue to cover the cost of music streaming, plus some. But the question is, is there enough demand for MySpace inventory? If the demand is low, MySpace will either have to eat the cost of their streamed music, or try to push more inventory on the site, further devaluing their CPMs.

What’s the solution for MySpace? Oddly enough, the music service could hold a key to fixing the social network.

Member profiles on MySpace will always be difficult to monetize because of the unpredictable nature of the content. The solution is for MySpace to abandon its ad inventory on member pages, and create new pages where the content is predictable, desirable and “professional.”

The key here is the content, which is the most valuable branding tool. Say what you like about Web 2.0; but high-quality, professional content still brings in the ad revenues.

Music is a prime example. Pepsi had Michael Jackson; Chevy had Toby Keith. Brands have been trying to associate themselves with music since the early days of sponsor-supported radio.

What’s It Look Like?

MySpace should acknowledge that it’s member profiles are basically not monetizable. Their revised strategy should then be to leverage the profiles as a means to drive members to high-value services — such as personalized radio. These extra services can then be monetized, rather than the profiles. Profiles would still have value as a way to build data on users, to target ads on other services.

I envision a MySpace music service on a separate interface, popped-up from a member profile, but viewed independent of the profile. The separate music interface would benefit in three ways: 1) The page would be separated from any content that runs contrary to the advertiser’s identity. 2) The advertising could be targeted to the specific music, and thus to particular demographic & psychographic audiences. 3) The advertising could also leverage the specific interest-based data pulled from the originating profile, such as age, location, favorite products, or hobbies.

The profiles then are left completely personal, without intrusive ads. This would make users happy — and improve MySpace's image. The new service pages would contain highly targeted ads, which would benefit from improved sell-through rate and higher CPMs.

Monetizing The Music

The ability to place ads within the music service adjacent to specific artists would bring exponential value to MySpace’s business.

If MySpace were clever, they would allow advertisers to bid for popular artists, in the same way Google advertisers bid for keywords. Some popular artists might fetch CPMs of $50. Following the 80/20 rule, 80% of requested songs would be from the highest-priced 20% of artists. That actually allows MySpace to maximize profitability, because the highest CPMs are claimed by the most often-requested songs.

Of course lesser-known artists could be bought at a discount, but still hold real value for specific businesses. Imagine a Jamaican resort buying placement along the entire catalog of Jimmy Cliff or Bob Marley. Because the ads are highly targeted, there is little downside risk for small advertisers to buy into the long-tail of music.

It’s not easy to predict just how much revenue could be generated by this strategy shift. Certainly MySpace traffic metrics would see a lift as more members stay on the site longer, streaming music. If we assume that 2% of MySpace’s current 1 billion monthly sessions use the product; that would generate about 100 million additional ad impressions. Using the $2 CPM number, that’s about $4.8 million annually. Not a lot of revenue in the grand scheme.

But the real benefit for MySpace is that it could stabilize the demand and value of MySpace’s ad business overall. This is something the site sorely needs today.

Bill Houghton is a 13 year veteran of new media business and product strategy, having developed strategies for AOL Music, Moviefone, AOL Entertainment, and MyStrands.com. His latest efforts focus on media discovery via social networks, and business models to assist independent artists. Read more from Bill at www.BroodingSavage.com.

WHAT'S NEXT?

Subscribe via RSS or Email  ::  Email This Post   ::  Leave a comment

Bookmark to: