How to monetize MySpace

Anyone who’s followed my blogging knows that I have written extensively about Rupert Murdoch’s acquisition of MySpace.  So when I read the feature story in yesterday’s NY Times about the same topic, as well as all the follow-up discussions around the blogosphere, nothing really jumped out at me… at least not to the point where I thought I could add to the conversation with further insight.  But when I read the Times article again this morning, the following excerpt caught my attention:

Another question is this: Can the News Corporation achieve these goals if the executives in charge don't agree on how to do so, or even on whether they want to? Mr. Levinsohn, for example, said he saw opportunity in the one million bands that have established profiles on MySpace; he said MySpace could charge bands to promote concerts or to sell their songs directly through the site.

In an interview the next day, however, Mr. DeWolfe dismissed the idea. "Music brings a lot of traffic into MySpace," he said, "and it lets us sell very large sponsorships to those brands that want to reach consumers who are interested in music. We never thought charging bands was a viable business model."

In the disagreement between the two executives, I am firmly on the side of Ross Levinsohn.  Let me put it another way… if there is any player out there that is optimally positioned to challenge the dominance of Apple’s iTunes, it is without question MySpace.  No other service, site, or portal on the web even comes close to MySpace’s “natural” potential to monetize music.  And with iTunes having generated over $1 billion in revenues, this opportunity is the classic “low-hanging fruit”.  In fact, the record labels (who are currently at the mercy of Steve Jobs ) should be doing all they can to help MySpace get into the game in a big way with significant and innovative digital distribution deals.

Successfully monetizing via music will also alleviate much of the pressure on the ad revenue side.  Nicholas Negroponte said to me a long time ago that placing ads in online communities was like trying to advertise in books.  It’s not a natural format… neither for the advertiser nor for the users.  My bet is that for MySpace, ecommerce initiatives, starting with music, will prove far more native to the medium and financially lucrative.

That said, I’m not suggesting MySpace should abandon ads altogether.  Rather, they should ignore most of their remnant inventory and sell ads on a selective basis where they can charge premium rates.  They are already doing so by selling daily blocks on their homepage (which I estimate are currently worth $250,000 per day vs. Yahoo’s $1 million per day).  It should also be noted that MySpace’s massive reach and audience could make it feasible to monetize music via ads.