Last Rites, Last Supper and Last.fm

It’s all about death and dying this week. I read today that several social networks are on a killing spree: “MySpace’s YouTube Killer – Killing Will Begin Shortly,” by Pete Cashmore.  And then the day before, “Virb.com, Possible MySpace Killer, Goes Live” And there were more, many more just like this in the social network arena. Gladiators face off. One giant reality TV show. I’m not sure who is killing who (or is it whom?) but it seems there is plenty more room for death, since users are still not getting the best experience.

Digital music is also in imminent danger of death. Who will pronounce the Last Rites. Or shall I say, Last Rights? This week’s decision by US Copyright Royalty Board to set new royalty rates for the internet may very well mark the beginning of the end for rights owners. This very near-sighted decision means that internet radio and all other relatively new business models (the only hope of this flailing industry) have been put at even greater risk. It’s not enough that labels and publishers haven’t figured out that when compared to free, 99 cent (or 79 pence) tracks are not going to appeal to 40 times as many people who download from P2P sites unless there are tons of other services and other benefits bundled into the mix. This new decision will affect Internet radio and subscription streaming services, or music on demand. Radio is the way people have always discovered music, this encourages listeners to go out and buy! And the new music subscription model is the greatest thing since sliced bread, another fabulous discovery mechanism that can bring revenue to the industry. But both discovery mechanisms have been sentenced to, yes, Death!

The new rates are a fixed rate price per stream of music (song) and RAIN, the Radio and Internet Newsletter, says that after doing the math, internet radio is no longer sustainable, at least not in the US. And the payments will be retroactive, so we will likely see quite a few little internet radio stations falling to their death in the not too distant future (if the new rates aren’t appealed). I hope that other countries will learn from this and figure out other sustainable models for royalty payments. And why not come up with rates for the likes of MySpace, full track streams in the context of community pages. Please join me in a little prayer. We all need help.

This most recent betrayal comes from within the industry, not unlike the Last Supper. However, in this modern day version it wasn’t just one of the Apostles who is slated to betray Jesus (music, in my somewhat shaky metaphor), but the entire group of them. You can imagine a group of talking heads, major label executives, rights collection agencies… lots of red wine and thoughts about how to save their struggling industry. One says, “Hey, I know. We’ll just charge more!” And each goes their own way to do just that. There is only so much betrayal the industry can handle, only so much money, and consumers and advertisers cannot be expected to foot the bill for all of this misplaced greed. The model is broken. Hopefully all of this death will lead to some kind of re-birth, phoenix rising from the ashes and all that.

But while we’re on the subject of “last,” let’s look at Last.fm? Surely, they will not be able to enter the US, the big market and the one that counts, with this new royalty rate card. Which begs the question of who in their right mind would even think of paying 400 million dollars for a site with only 15 million users, no easy entry into the US and virtually no revenue model, or at best an unproven one? Sure, I have lots of friends who use their radio player, but I don’t know anyone who spends time in their community, which is where the ads are presented. How are they going to justify this valuation? Is it only because Viacom is still steaming mad that they didn’t get MySpace (I think their investors will be happy when they see how the level of contingent liabilities MySpace will at some point acknowledge)? This valuation insanity reminds me of the year 2000, when little startups had no earnings or strategy for the future. And bam, 1 year later, most went up in smoke. Is this the beginning of the end? Do Lastfm rumours of valuation signal the last days of this new world of web 2.0, digital music or just investor sanity?

Posted at 09:59AM Mar 08, 2007 by shelley in Music  |  Comments[2]