Can Free Music Save MySpace?
In my last article, I explored the feasibility of a streaming music service by MySpace. The conclusion is that MySpace definitely has the traffic and ad inventory to make the business profitable. Unfortunately MySpace also has some financial problems that make the business not quite so cut-n-dry.
(This is part 2 of my 2-part series on MySpace and ad-supported music services. Read part 1 here.)
Let’s do some math:
MySpace’s overall advertising revenues in the United States reached approximately $525 million in 2007. But in the same period, MySpace served about 40 Billion monthly pageviews. Assuming that each page has space for 5 ads, that’s about 2.4 trillion ad impressions for the year. Assuming a conservative CPM of $2, MySpace should have made $4.8 billion in advertising.
Based on MySpace’s reported revenues, their actual CPM is $.24. But that’s not accurate either. Most of MySpace’s revenues comes indirectly, such as through their Google search relationship. In reality, MySpace rates have been reported to hover around $.01 CPM.
Why did MySpace fall short more than $4 billion in ad revenues last year, and why is their CPM 1/200th of what it should be? Lots of reasons, but mostly because there’s little demand for advertising on MySpace -- or on Social Networks in general. Advertisers are shy about appearing in the pages next to content that is often inflammatory, inappropriate, or just plain stupid. Add to that the enormous glut of inventory (2.4 trillion impressions!) and the net result is lots of traffic that can’t be monetized.
MySpace should acknowledge that it’s member profiles are basically not monetizable. Their revised strategy should then be to leverage the profiles as a means to drive members to high-value services.
The ability to sell ads on Social Networks has become such an glaring problem that Google openly acknowledged in it’s January earnings call that they have been unable to figure out how to monetize traffic on social networks.
MySpace didn’t earn $4.8 billion last year because they didn’t serve 2.4 trillion ads. In fact, they eliminated a huge portion of their advertising inventory. If you go to MySpace today, you’ll likely find page after page where all ads have been removed. If they hadn’t, they would have seen the value of the company’s advertising deflate to almost nothing, destroying their hopes for profitability.
Is Music the Solution?
MySpace has the potential to generate sufficient revenue to cover the cost of music streaming, plus some. But the question is, is there enough demand for MySpace inventory? If the demand is low, MySpace will either have to eat the cost of their streamed music, or try to push more inventory on the site, further devaluing their CPMs.
What’s the solution for MySpace? Oddly enough, the music service could hold a key to fixing the social network.
Member profiles on MySpace will always be difficult to monetize because of the unpredictable nature of the content. The solution is for MySpace to abandon its ad inventory on member pages, and create new pages where the content is predictable, desirable and “professional.”
The key here is the content, which is the most valuable branding tool. Say what you like about Web 2.0; but high-quality, professional content still brings in the ad revenues.
Music is a prime example. Pepsi had Michael Jackson; Chevy had Toby Keith. Brands have been trying to associate themselves with music since the early days of sponsor-supported radio.
What’s It Look Like?
MySpace should acknowledge that it’s member profiles are basically not monetizable. Their revised strategy should then be to leverage the profiles as a means to drive members to high-value services -- such as personalized radio. These extra services can then be monetized, rather than the profiles. Profiles would still have value as a way to build data on users, to target ads on other services.
I envision a MySpace music service on a separate interface, popped-up from a member profile, but viewed independent of the profile. The separate music interface would benefit in three ways: 1) The page would be separated from any content that runs contrary to the advertiser’s identity. 2) The advertising could be targeted to the specific music, and thus to particular demographic & psychographic audiences. 3) The advertising could also leverage the specific interest-based data pulled from the originating profile, such as age, location, favorite products, or hobbies.
The profiles then are left completely personal, without intrusive ads. This would make users happy -- and improve MySpace's image. The new service pages would contain highly targeted ads, which would benefit from improved sell-through rate and higher CPMs.
Monetizing The Music
The ability to place ads within the music service adjacent to specific artists would bring exponential value to MySpace’s business.
If MySpace were clever, they would allow advertisers to bid for popular artists, in the same way Google advertisers bid for keywords. Some popular artists might fetch CPMs of $50. Following the 80/20 rule, 80% of requested songs would be from the highest-priced 20% of artists. That actually allows MySpace to maximize profitability, because the highest CPMs are claimed by the most often-requested songs.
Of course lesser-known artists could be bought at a discount, but still hold real value for specific businesses. Imagine a Jamaican resort buying placement along the entire catalog of Jimmy Cliff or Bob Marley. Because the ads are highly targeted, there is little downside risk for small advertisers to buy into the long-tail of music.
It’s not easy to predict just how much revenue could be generated by this strategy shift. Certainly MySpace traffic metrics would see a lift as more members stay on the site longer, streaming music. If we assume that 2% of MySpace’s current 1 billion monthly sessions use the product; that would generate about 100 million additional ad impressions. Using the $2 CPM number, that’s about $4.8 million annually. Not a lot of revenue in the grand scheme.
But the real benefit for MySpace is that it could stabilize the demand and value of MySpace’s ad business overall. This is something the site sorely needs today.
Bill Houghton
in Business Strategy, Product Strategy, Business Analysis, Internet, Web 2.0, Social Networks, Music, New Media, MySpace, Web Radio
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Reader Comments (9)
Could you clarify your statement about top-tier Artist's demanding premium $s in a CPM model? By my logic, those Artists receive more page views than smaller Artists (higher 'Ms'), which would lead to a naturally higher payout for them. Smaller Artists would receive a payout requisite to the traffic and attention they drive. In order for your claim to be accurate, advertisers would need to get more value per 'M' from the top-tier Artists than they do from the smaller Artists. Does it seem reasonable to suggest that the fans of a top-tier Artist are better or different consumers of products than fans of smaller Artists? Using google as a model, it seems to me that the CTR's of any given Artist would determine their relative CPM value to an advertiser. Do you see it differently? Do you have some data about the relative CTRs from one MySpace music page to another that I don't have?
Thanks for the comment Linda. In an auction-based model like I suggested, the CPM would be set by the demand for a particular artist among competing advertisers. The most sought-after artists would be those with the ability to project their personal qualities onto the brand they are appearing with. A popular artist would hold more value for an advertiser because they have more influence with consumers, and are better able to project the qualities of the advertiser's brand.
For example, Alicia Keys and Kanye West would be at a premium because of their spike in name recognition and perceived success following their Grammy wins. But notoriety has a downside, since Amy Winehouse might see a drop in CPM values because she personifies negative qualities.
Long-tail artists also have value, but because their fame is less widespread, they don't have the ability to positively effect a brand as a top-tier artist would. So an advertiser might pay less for Todd Rundgren or The Kahoots. But there would be a market for these artists among long-tail advertisers (I personally would buy ads next Todd Rundgren, because I'm a huge fan.)
Thanks for the clarification. I wasn't understanding the premise that advertising in proximity to an Artist would be seen as some sort of tacit endorsement by the Artist, or carry a strong affinity for the Brand. But if this is the case, then MySpace (one of the worlds largest publishers) already knows this, right? And if they know this, than they are already selling these ads for higher CPM's right? Would an auction model just make it more efficient, or do you believe that there are advertisers on the sidelines right now trying to throw higher CPMs at MySpace for top-tier Artists and that MySpace isn't willing or isn't able to accept those offers? I guess I am trying to figure out how an auction model would materially increase the CPMs as you have suggested. Certainly they would achieve some extra pricing efficiencies, but if the delta is going to be really significant MySpace must be drastically mis-pricing their inventory today. Is that what you are saying?
MySpace doesn't sell their ads on an auction basis. They sell the ads on a straight CPM basis (or CPC for text ads). So every ad impression has the same value, whether it's on my profile or someone else's. I suppose there are higher-price ads on some high-traffic areas where the content is controlled. But in general, MySpace doesn't take the content of the page into account when determining the price.
Hey Linda: If MySpace is aware of the potential for higher CPM for certain artists, they are certainly not doing anything about it. I suspect the current system of use-generated profiles is impossible to monetize in the way I propose. However, a new streaming service would create a new platform where MySpace could better maximize it's advertising revenue.
An auction system does 3 things: 1) it allows for the maximum amount of revenue per ad, since advertisers would bid against each other for highly desired space. 2) it would allow better targeting, since advertisers could choose exactly what kind of content they want to have appear next to their brand. 3) it would allow MySpace to more intelligently manage excess inventory, since any unsold space would represent the lowest-value inventory and could be eliminated to maximize CPM.
Thank you very much. I think get what what the auction model does and appreciate the feedback and clarification. I was just questioning the leap from making the pricing more efficient (a small increase in CPMs) to making the pricing increase exponentially ($50CPMs that you had suggested were possible). I still wonder why, if MySpace could actually get $50CPM on some of the most popular Artist pages, they would not be doing so already.
I agree with all of the things you say about auctions. Believe me, I am a believer in them. I'm just not buying the magnitude of the impact that going to this model would have for MySpace. $50CPM is 25x the going rate. Video and interactive doesn't even get that kind of money.
Then again, I'm a cynic.:) Thanks for the conversation.
The problem with your concept is not in idea but in practicality. Myspace Music has started to lose major traffic to play listing services such as Project Playlist, Imeem, etc. Whereas, the common user doesn't care about a Myspace Logo or not, but merely wants their content the way they want it. Hence, Myspace bands are beginning to seek alternate websites which allow for the artist to add more songs to their profile to further garner the attention of the prospective "fan".
Problem is Myspace doesn't allow for the artist to monetize any content on the page with advertisements on a pay per play basis like the Radio currently operates. The cost of exposure is mundane when you factor in the loss of funds from a great many people who would rather just play along than ever purchase.
So advertisement on a CPM basis could not consistently be bartered in an auction setting based on various reasons. First, bands are always reluctant to sign single deals with one advertiser for one avenue of promotion. Under this concept, the artist would be in effect bartered. Which a great deal of major artists have signed agreements with certain companies of use of likeness etc. Whereas, Beyonce has signed with Cell Phone Company A) and B) wants to compete to advertise on Beyonce's myspace page, it could create a conflict of interest.
However, the real way Myspace or for that matter any Social Networking site could make money, would be to put a text or visual banner so that everytime someone merely listens to the song the artist and the network get paid. You could make this extremely cheap too on a random basis with 0.05 cents per 100 plays paid directly to the artist and say 15 cents to the network, costing perspective advertisers .20 cents per thousand impressions. Its not much, but if the company has playlisting, this could create viral marketing coupled with Play-listing, and that could be huge...
Devon Drake
Drakewire
Are MySpace CPM rates published anywhere? Because I've tried and tried to find them and nada. The first time the 0.01 rate number arised was in 2006, but things can change pretty quickly. Why is MySpace so secretive about it?
Ana: Ad rate cards are not generally published, but sometimes you can get that information from advertisers who've worked with a publisher. But the published rate is not the real story. Most publishers plan their budgets around a "discount rate card" which is highly secretive -- since it's often a negotiated price and not available to all advertisers. Also in the case of Social Networks, much of the inventory is PPC, which has a flexible price based on the keyword auction. The only way to estimate the actual rate is to do the math: (number of pageviews * ads per page / advertising revenues)/1000. This gives an effective CPM -- although it's an estimate at best. In MySpace's case, you would need to factor out their deal with Google, who paid millions for ads that never were monetized.