Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions
Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

A PowerPoint presentation about MySpace posted at Business Insider shows the company has an incredibly ambitious plan to turn around the social network.

But the plan may be too optimistic.

According to the presentation given, while seeking $50 million in funding, Specific Media plans to grow revenue from $15 million in 2012 to $58 million, $102 million and $140 million in the following three years. EBITDA will rise from -$42 million this year to -$25 million, $10 million and $33 million in the next three years. And it plans to do this as a music streaming service as its main competitors -- Pandora and Spotify -- have yet to turn a profit. It's a pitch to investors, so it's obviously going to be ambitious.

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In the second quarter of 2013, the company plans to launch a mobile subscription service and incorporate e-commerce transactions for artist merchandise, event ticketing and music downloads. These are functions that have yet to be added by the more single-minded Pandora and Spotify.

The presentation has a handful of red flags.

• MySpace wants to sprint before it can crawl. It shouldn't worry about selling tickets, merchandise or downloads. It should concentrate on being the best music service on the web. Its competitors, namely Pandora and Spotify, focus on doing just one thing. MySpace won't compete with either unless it focuses on being the absolute best at either Internet radio or on-demand streaming. Being average at many things doesn't cut it in the winner-take-all markets of the digital economy. Or MySpace should focus on being the best social network possible. It's an either/or, not an all-of-the-above, situation.

• If MySpace will be successful, it probably won't get there on the back of the royalty-free songs from the independent artists Specific Media says makes up a "significant" portion of its 42-million catalog. Instead, MySpace will need to stream more costly popular catalog. MySpace may pay no royalties on about half of its songs now, but wait until people actually start using it as a music service rather than a social network. And if MySpace actually takes off, expect any artists and rights holders paying attention to rescind their royalty-free songs from the catalog in order to get paid.

• MySpace's "sustained competitive advantages" given in the presentation (such as a 200-person sales force and a "unified infrastructure and platform") are not advantages that typically sustain over the long term. A true sustainable advantage would be, for example, Google's ability to link its social network, Google+, to the world's most popular search engine and its suite of web properties such as Gmail and Google Docs. True sustainable advantages are hard to find in social media. People disagree about whether or not Facebook has legitimate competitive advantages. There should be far less disagreement with MySpace.

Specific Media's pitch says MySpace is "THE social music destination for the creative community to connect with fans." Since MySpace's shine started to fade years ago, artists have been given a range of tools and services to forge a direct connection with fans: Facebook, Bandcamp, Topspin, MTV's Artist.MTV pages, Twitter and Kickstarter, to name a few.

But MySpace does have an opportunity here. The presentation notes the site's fastest-growing segments are ages 13-17 and 18-24. This is demographic with a proven affinity for both social media and advertising-supported media. It's a niche, but it could be a great place to start.

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