Cry Me a River: Why Justin Timberlake's MySpace can't take on Spotify and Rhapsody

By Richard Nieva , written on November 19, 2012

From The News Desk

It’s dangerous when actors confuse a role with reality. Imagine if Daniel Craig, for instance, suddenly believed he were James Bond and chased villains across the tops of trains. Or if Nicholas Cage really thought he could take his Today, we are seeing why Justin Timberlake should probably only play an entrepreneur in the movies.

A deck from MySpace’s funding efforts is circulating around the Internet, and it is an awful idea. The plan says that MySpace’s parent, Interactive Media Holdings (formerly Specific Media), is out to raise $50 million in funding, with which it intends to repurpose MySpace as a streaming music service, in direct competition with Spotify, Rhapsody and Pandora. What Timberlake and Co. need to understand is that a known brand isn't necessarily a good brand, and all eyeballs aren’t good eyeballs.

Simply put: The idea is ill-fated. Never mind that the sector is already crowded; the faith in MySpace as a brand is misplaced. Last week I wrote a story that mentioned MySpace as a terrific site for band profile pages. That’s one area where the brand is still healthy-- if a little bit dusty. Its loose association as a music discovery site is dated in a pre-Spotify era. Even if it weren't, being a place where bands can cheaply amass fans is a world of difference from a site that negotiates and prices deals with labels. That's like someone saying, "Oh, AOL used to be known for dial up... maybe it would be a good mobile opportunity!"

Sure, MySpace has traffic. But all traffic is hardly created equal. Failed turn around after failed turn around has proven that there's little value in a legacy user base unless that user base is a paying user base—as in the case with the thrice-acquired and relaunched Webshots. In most cases, legacy traffic does little to evangelize a new service, especially against a company like Spotify, which has a formidable paid premium service or a company like Pandora, which is the only music startup to actually make it to the public markets.

Consider the legacy traffic of a similarly once-hot, now has-been site Digg. In a reader poll, more than 90% said they wouldn't recommend the site to a friend. This begs the question: Why are they going to the site if they hate it? Habit. Not love. Habit. JT: You simply don't build a company in the hardest space known to the Internet with a "meh" readership of lame eyeballs going to a has-been site out of habit. You do it with impassioned evangelists. Impassioned evangelists haven't been to MySpace since about 2006.

Spotify's Daniel Ek underscored just how ludicrous it is to get into the market, even for companies that are better positioned. At a recent PandoMonthly in New York, Ek enumerated all the great entrepreneurs who have failed at digital music: Sean Parker, Shawn Fanning, even Mark Zuckerberg with WireHog.

I can see the romance of trying to save MySpace. For investors and new management, there is a sense of ego in turning around a company that's been left for dead. But investors should not be fooled: MySpace is in the midst of a classic turnaround attempt, not the creation of something new, just because it’s moving into a new market.

Once-proud brands like Bebo, StumbleUpon and Delicious have, so far, failed to rebuild in any meaningful way. Last summer Digg became the latest Web 2.0 company to try, when the New York incubator Betaworks paid $500,000 for the social news website. Results so far have not been astounding-- and note the price tag for trying was far less than $50 million. Friendster, for its part, knew when to quit, finally selling to a buyer in Malaysia while the site was still hot in Southeast Asia.

“The chew-it-up, spit-it-out psychology of the Internet is very real,” says Paul Resnikoff, editor and publisher of Digital Music News, a Santa Monica, CA-based trade blog. Though he is not optimistic, he did say that one place MySpace could add value is in figuring out immersive discovery -- helping a user to find new musical acts without just letting a radio algorithm do it (even though Pandora has near perfected that). Spotify in particular has been struggling with this, he says.

The leaked business plan says half of the musical acts on MySpace are unsigned artists, and their music makes up 27 million of the songs in their 42 million song library. Relying that heavily on unknown artists is good -- noble even -- for encouraging music on the Internet. But there's a reason it hasn't been done: It's a horrible way to build a business. People go to music sites to hear music they know, not music they don't know. “The activity around very obscure bands has its limits,” Resnikoff says.

Betting on known talent has been the conventional wisdom since the digital music industry’s Big Bang: Napster. In 1999, when the Recording Industry Association of America sued Napster on behalf of the five big record labels of the time, one of Napster’s lead defenses was that the service primarily sought to allow people to discover new music from unknown bands -- not enable people to steal popular music from known artists. The court tore down this defense when the discovery process turned up a facepalm of a company advertisement touting new improvements making Napster’s software more efficient: “Forget wading through page after page of unknown artists,” the ad said. It’s no wonder that Parker’s next major music venture Spotify banks on its big name associations.

The music industry is cutthroat, as Napster soon found out. Pandora had to encourage rabid listeners to break Congress's fax machines to stay in business. Spotify had to take the un-Uber approach of not disrupting the industry and bending over backwards to work with it. Even then, Ek spent years camping out in front of labels' offices until they would sign onAnd these are the industry's success stories.

It’s a lesson MySpace has to learn quickly if it wants to really be in the music business, and not just dawdle along on the outskirts. Pulling off a turn around would be remarkable enough. Pulling off a turn around by taking on the single hardest business model on the Web is just a waste of $50 million that could be invested elsewhere.

When a band puts out mediocre material for years and years, it’s near impossible to get back any good faith. This goes double for websites.