No Label, No Problem

Did you hear that MySpace.com launched its own record label earlier this month? Probably not, but that's the way revolutions start. It's never an overly romanticized shot heard around the world that triggers change. It's usually more like a BB pellet fired off into the neighbor's empty sandbox that eventually moves mountains.

MySpace is a popular social networking site. Rupert Murdoch's News Corp. (NYSE: NWS  ) snatched it up earlier this year in a deal that history may vindicate as the greatest acquisition since New Amsterdam or Babe Ruth. Sure, I'm stretching the hype taffy with that notion, but keep reading before you go off on me.

Social networking was initially more style than substance. Sites like Friendster and Tribe.net grew quickly but without defined purposes. Folks would sign up and meet fellow members with similar tastes, but the sites didn't seem to serve much of a useful purpose beyond online dating and self-absorbed blogging applications.

MySpace succeeded by keying on the one thing that most of its young crowd had in common -- music. It may have happened accidentally, but after watching bands like R.E.M. and Nine Inch Nails use the service's growing community as the launching pad for its new CD releases, MySpace soon became the place to be if you were an edgy alternative rock band, signed or not.

These days, MySpace draws 35 million members and signs up 4 million new users every month. They, in turn, chronicle their lives with multimedia goodies that give Murdoch's hot new date the ability to cash in on content that creates itself. From Weezer to that garage band down the street, 550,000 musical artists have made the site their promotional hub. With hosted music and video clips, the bands can promote everything from their latest gigs to the search for a new bass guitarist. It's the purest application of a promotional street team. And -- oh, yeah -- it's free to boot.

This brings us to the kid cocking the BB gun and aiming next door. This month, MySpace released a CD compilation featuring 17 different artists that have used the service's viral flypaper to promote their music. From established bands like Fall Out Boy and AFI to promising unknowns, MySpace has in one fell swoop become what the original MP3.com could have been.

With MySpace having a CD out in stores, and more to come, how many more bands do you think are likely to make the service their musical mainstay and staple their amps to a virtual MySpace subdomain? More importantly for these bands, as mentioned earlier, the site has also announced that it is starting its own music label.

MySpace already has one artist signed up. The service is gearing up for a CD release by Los Angeles-based Hollywood Undead next year and is scouring its own site for a few more potential deals. Yes, MySpace had to go old school in the sense that it is teaming up with Interscope Records to handle the fulfillment. But this may still signal the beginning of an age where the four remaining music labels will no longer be wielding the same kind of power they once had.

Two months ago, Warner Music Group (NYSE: WMG  ) launched its new e-label with the debut release of Ohio rockers The Sun. No CD was released. The only things pumped into retail channels were a DVD with miserly budgeted videos of the record's tracks and a throwback version of the album on vinyl. The band would rely on digital distribution sites like Apple Computer's (Nasdaq: AAPL  ) iTunes Store to move singles and also used MySpace as a way to rally potential fans around the unconventional introduction.

So let's see here. CD sales have fallen in four out of the past five years, yet Apple has been able to deliver 500 million songs digitally. The Internet has leveled access to promotional tools, so why can'tGoogle (Nasdaq: GOOG  ) or Apple -- or MySpace -- become the next great record label?

OK, so Apple may be a tricky one. If Apple launched a label, it would rekindle its old flap with The Beatles. The Fab Four, who recorded on Apple Records, eventually played nice with Apple Computer, but not before Apple Computer had agreed not to go into the music business.

However, I can definitely see Apple eventually opening up iTunes access to more than just the labels and certain indie distributors. With EMI claiming that Apple is likely to raise the $0.99 price on signed artists, thus giving Apple the leeway to lower the price on more obscure musical acts, isn't it just a matter of time before the floodgates open up to allow any aspiring musician the ability to upload tracks onto Apple's turf?

If Apple doesn't do it, then surely Google will. Amazon.com (Nasdaq: AMZN  ) has come close by offering undiscovered artists the ability to upload songs and then have fans click some coins into virtual tip jars. CNET (Nasdaq: CNET  ) refashioned MP3.com into a portal for digital distributors, but it is still collecting an arsenal of unsigned talent at its Music.Download.com domain.

If you're an aspiring musician, color me jealous. That's the olive green crayon in your Crayola box. In the late 1980s, my own band had to do it the hard way. We had to make the right connections and gig at the right places before getting noticed. Ultimately, we were signed to a major label. However, our time with Sony's (NYSE: SNE  ) Columbia Records was brief and unremarkable. We sold 35,000 copies of two singles. Our management company swallowed a six-figure advance. As a band, we made more money generating more than 400,000 downloads at the old MP3.com site than we ever did with our major-label experience. No, you've never heard of Paris By Air. I probably have never heard of your band, either. However, thanks to the Internet and digitally savvy upstarts like MySpace, where folks go to hear and be heard, that's starting to change.

So did you hear about MySpace's new music label venture? You just did? Cool. Pass it around.

CNET is an active recommendation in theRule Breakersnewsletter service, and Amazon.com has been a winner fortheMotley Fool Stock Advisorresearch team.

Longtime Fool contributor Rick Munarriz still keeps his synths nearby and relishes the ever-shrinking quarterly songwriting royalty checks from BMI. He does not own shares in any of the companies mentioned in this story.The Fool has a disclosure policy. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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