In light of the recent news that Facebook's ongoing effort to launch a free streaming music service has stalled, we figured to help them come up with a viable solution that will pay out long term dividends instead of the instant gratification they were looking to receive via a deal with the four big labels.
As reported in the Washington Post, according to multiple sources familiar with the situation, Facebook was close to a deal that would bring free streaming music from three of the four big labels (Universal, Sony, EMI) through the Total Music joint venture. But the deal stalled when the lone holdout, Warner Music, refused to participate.
From The Washington Post: We believe, based on discussions with a number of sources, that Buzznet, iLike, iMeem, LaLa, Last.fm, Rhapsody and other services were contacted and provided with a document (sometimes referred to by sources as a RFP (request for proposal), other times called a term sheet) that outlined certain goals of the new Facebook music service.The RFP requires the third party service to build and power a new Facebook Music Service that offers free music streaming and playlists, music downloads for a fee, and other music merchandising services such as ringtones, concert ticket sales and physical goods like t-shirts (if this sounds like MySpace Music, it's because it is exactly their model). The service must not only handle front end user requirements but must also be able to handle the very tricky tracking issues required by the labels to monitor music streams and fees. The RFP also includes onerous termination provisions that allow Facebook to take ownership and control of the service and the user data under certain circumstances. In return, say our sources, Facebook will offer the third party a split on revenues generated from the service. We've heard conflicting accounts of who will pay for the big up front fees labels require to get a music service up and running. Some estimates of prepaid royalty requirements are as high as $100 million, which Facebook is looking to avoid paying themselves. Other sources say that Facebook may be willing to pay these fees if they can't force the third party to take them on.
Guess what Facebook? You don't need to worry about the four major labels and their increased "understanding" of how to profiteer from media sites like yours, because there are thousands of independent bands and labels that are willing to waive the initial prepaid royalties in order to have a site like yours support their efforts. See, MySpace was built on independent bands and labels. In fact, at the beginning, the only way to get major label artist's music was if the bands or fans of the bands uploaded it themselves. But when it came time to monetize those efforts, the indies were left in the dust.
Now, we could go into the specifics of why this is wrong on many levels, but instead, we'd like to point out the huge plus side of this for a site like Facebook: There is a gaping need to cater this type of business model specifically to the indies. Sure, you can leave it in the hands of a start-up (maybe the next Facebook or MySpace?) -- and rest assured it will happen very soon -- or you can pioneer efforts to single-handedly reach out to independent bands and labels. Maybe even start with all of the ones who currently have well over 100k plays on MySpace, but have been blocked out of the current revenue stream system?
Sure, this is a daunting task, one that will take a lot of due diligence assuming Facebook would have to hire a staff and legal team dedicated to it, but we promise that the pros will soon outweigh the cons. In a social networking system, the role of sites like MySpace and Facebook is to share what is new, not that of which has already been. So when it comes to servicing music to it's users they can use the model of a social networking site (new music, easily passed with few restrictions), or you can use the antiquated radio model (fewer artists and fewer songs controlled by a small group of people who prefer a pay-for-play system -- especially if it means outside advertisers are paying, because they pay more for ads than consumers do for music). So, the choice is yours, you could target the millions upon millions of people who made Facebook what it is today, or you can continue to cater to the people who are using "the command and conquer approach" to the internet. That is, to sue the hell out of whoever dares to host music online, then cut a deal with them that brings in millions of dollars in penalties and fees.
Aside from the command and conquer approach, Total Music, as the Post explains, acquired Ruckus to handle the back end and is striving to cut two types of deals. The first is with device makers to allow music to be accessed directly from the device for free. The device makers pay a fee to Total Music, which is passed on to the consumer. The second type of deal is with websites -- who get to stream music for free with advertising. The revenue from those ads, plus a lot of user data, is owned by Total Music.
That's the deal that Total Music approached Facebook with. Facebook would get free streaming music (while rival MySpace paid a fee per song played). Total Music would serve advertising and keep all the revenue. Facebook would also hand over user data to allow Total Music to port playlists to supported devices and other services.
To be fair, there are sources out there who do cater to indies -- iMeem for instance -- and MySpace did complete a deal with The Orchard, but neither are paying anything back to small bands and labels at this point and both fall short in addressing the real void that these systems create, which is the unsigned band and why people use social networking sites to begin with. Intellectual property is no different on the indie or unsigned level than it is a major label. Say, for instance, if an unsigned Vampire Weekend creates more demand and page views than many major label artists (which they did prior to signing with XL), therefore creating -- at the very least -- more CPM ad revenue, isn't that just as viable an incentive as having the access to the major's catalog? And the Vampire Weekend example is not the exception, but the rule with social networking sites.
Apparently not only did the deal with Total Music fall through, it looks like it will never happen. And while some sources say it was because Facebook didn't want to hand over all the revenue and user data (can you blame them?), the Post states that others have a different explanation which makes more sense. Warner Music refused to allow their music to be accessed for free.
That means Facebook either needs to pay, or Warner needs to budge. Neither may happen, and rumor is that Total Music's political capital at Universal and Sony has all but dried up as they struggle to complete the Facebook or any other deal.
And so with funds drying up, what better time to take the innovative approach of catering to the bands that MySpace forgot? We await your call Facebook so that we can better explain our business model. We have great A&R senses and can tip you off to hundreds of bands that could use your money while increasing your revenue and advertising streams. Oh, and the best part? You'll never have to hear the words "like the MySpace Music model" ever again.