The Internet: a place to pay for music?
The Internet has been a decidedly mixed blessing for the music industry, encouraging people to listen to more songs and discover more bands but also to buy fewer recordings. One reason is that there's been a disconnect between where people go online to find and hear music, and where they can pay for it.
Two pieces of news today suggested that the industry may soon turn more of that burgeoning consumption into revenue, although neither one is a sure thing. TechCrunch, among others, reported that Google -- the site that millions of music lovers use to find bands and songs online -- is poised to launch a music service. The venture, which is set to be unveiled next week, reportedly will combine Google's search capabilities with streaming and purchasing functions from Lala.com and MySpace's iLike. Meanwhile, Facebook -- the planet's most popular social network -- has chosen Lala to power a new music-gifting service. Starting Thursday, users will be able to send their pals MP3s or Lala "websongs" (streamable songs from an online locker) in addition to the usual array of virtual gifts.
By putting the ability to hear and buy music where the masses spend time online, Google and Facebook could help convert more of the Internet's free music consumption into revenue. In both cases, users won't have to pull out their wallets to generate royalties for labels and artists -- Google would presumably share revenue from the ads it sells around its music service, and Facebook would automatically ding its users' credit cards for the music gifts they send. According to Lala CEO Bill Nguyen, Facebook users already spend $50 million or more annually on such gifts as virtual plants and pictures of birthday cakes, which sell for about $1 apiece. So it's reasonable to assume that they'll spend 10 cents to a $1 sending people songs. (Note to the Beatles: Now's the time to license "Birthday" and "Yesterday" to Lala.) Nguyen is so bullish on Facebook's music gifts that he said it could bring in "an order of magnitude" more revenue for the company. He added, "This may be the most significant thing since the ringtone." (He declined to comment on the Google reports.)
That's hyperbolic, but Facebook certainly is taking a lot of the friction out of buying music for a pal. Not only does it tell users about their friends' birthdays and other significant events, it also makes it easy to search through Lala's catalog of 8 million songs for just the right sentiment. And the 10-cent charge for streamable tracks is practically painless, especially when it's added to the user's tab automatically, Google's advantage, meanwhile, is that it's extremely well positioned to serve music fans and the advertisers who want to reach them.
Still, it remains to be seen whether Google pursues a pure advertiser-supported model, à la MySpace Music and the much-hyped Spotify, or if it is more focused on driving sales through social-based discovery and low prices, à la Lala. As NPD analyst Russ Crupnick pointed out recently, free advertiser-supported services are cannibalizing digital music sales. That's true in part because advertisers won't pay much for banner or display ads on a music service that people use as background music. So if Google goes the unlimited-free-music route, it's an open question whether it would be able to generate enough revenue from advertisers to make its service a net plus for copyright holders.
My guess is that it won't. At a panel discussion today about new music formats at Digital Hollywood in Santa Monica, iLike CEO Ali Partovi spoke highly of Lala's model of one free listen. But he also said it was important to go beyond mere 30-second samples, which has been one of iLike's limitations. Said Partovi, "If you let them listen to the full song, they're more likely to buy."
-- Jon Healey