SNOCAP's Snowball Effect?

Last winter, I identified SNOCAP as one of four interesting privately held companies that investors might just wish were public companies. There wasn't too much news out of SNOCAP after that, to my surprise -- until now, and it's pretty big. As you have probably heard, it's hooked up with News Corp.'s (NYSE: NWS  ) MySpace, enabling the popular social networking site to offer tools to musicians looking to sell directly to fans.

It's true that this development bears watching for Apple (Nasdaq: AAPL  ) shareholders. Fool contributor Jack Uldrich wrote about the varied and sundry services that are springing up these days to challenge iTunes, with the SNOCAP/MySpace deal being the latest. (Last week brought word of similar challenges from Time Warner's (NYSE: TWX  ) AOL, as well as SpiralFrog.) However, I think this development is a lot more interesting than whether MySpace will loosen Apple's grip on digital music.

SNOCAP is the brainchild of Shawn Fanning, who created Napster (Nasdaq: NAPS  ) , the infamous service that created a heck of a lot of panic over piracy until it went legit. Through SNOCAP, a digital licensing and copyright management service, musicians will be able to easily set up online stores on MySpace by the end of this year. (Since they'll sell the songs in MP3 format, I can only imagine they'll be compatible with iPods.) News reports are saying MySpace and SNOCAP will take a cut of the proceeds, but artists will set their own prices.

Lots of people bring up the old-fashioned idea that "unsigned" translates to "artists without talent." That's pretty much what any record label, publishing house, or movie studio would want you to think. Media distribution more often than not sides with artists that are easily accessible and promoted to the masses. (In other words, often quite mediocre. There's little other choice when you're trying to be all things to all people.) Most media companies have functioned as hit makers for ages, but the tide is turning.

The Internet is changing all that, and it's most visible in the surge of user-generated content (and ratings and recommendations, for that matter). Blogs, YouTube, and Wikipedia all prove there's plenty of unsigned, undiscovered, unsung talent out there if you're willing to look (and yes, dig through a lot of not-so-hot fare). In a personal anecdote, I've been trying to buy digital copies of back-catalog work by one of my favorite (though fairly obscure) musicians from the '80s, much of which was no longer available on Amazon.com (Nasdaq: AMZN  ) . Over the past two years or so I've been able to buy content on his website (using eBay's (Nasdaq: EBAY  ) PayPal) and then more recently through iTunes; this past week I noticed that he has also been posting video on YouTube with links to content for purchase as well. That's a prime example of how artists can link directly with fans and do their own grassroots promotions.

So while Apple shareholders can wonder if (or when) a MySpace-driven music service will impact iTunes, the fact is the ramifications of this type of deal as related to traditional media businesses might be pretty astounding. With strong online communities springing up, uniting people from all over the globe and allowing artists unprecedented exposure (and services like SNOCAP), could the media companies that have functioned as the facilitators of "talent" face increasingly difficult days in the not-so-distant future?

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Alyce Lomax does not own shares of any of the companies mentioned.


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