Facebook Bails on Project Playlist, Too
by Peter Kafka
Posted on December 23, 2008 at 6:10 PM PT
Four days after MySpace cut the legs out from under Project Playlist by disabling the music streaming service’s app, Facebook is following suit. Here’s the official statement from Facebook PR:
The Recording Industry Association of America (RIAA) initially contacted Facebook last summer requesting the removal of the Project Playlist application for copyright violation, and recently reopened those communications. We have forwarded the RIAA’s letters to Project Playlist so it can work directly with that organization and music labels on a resolution. In the meantime, the application must be removed to comply with the Facebook Platform Terms of Service. Our hope and expectation is that the parties can resolve their disagreements in a manner that satisfies the developer and copyright holder, that continues to offer a great experience to music fans, and that doesn’t discourage other developers from using Platform to share their creativity and test new ideas.”
The only surprise here is that it took Facebook this long to face up to reality: There was next to no upside for Mark Zuckerberg and company in fighting the big music labels, three of whom are suing Project Playlist. But there was plenty of downside: At best, the social network would end up squaring off against potential partners; at worst, it’s conceivable that it could end up being sued by the labels as well.
Facebook’s move is also less important than the one that MySpace made last week. That’s because Project Playlist is first and foremost a music service geared toward users of News Corp.’s (NWS) social network.
It’s also not surprising that MySpace was the first to bail on Project Playlist at the labels’ request: Not only does the network have its own competing music service–MySpace Music–but its partners in that service are the four major labels– Sony (SNE), Warner Music Group (WMG), Universal Music Group and EMI.
Most important is what the big labels who are suing Project Playlist– Warner, UMG and EMI–hope to accomplish by forcing the social networks to cut it off at the knees. The boilerplate answer from the labels is that Project Playlist violates copyright, and that they’d complained to MySpace and Facebook before, etc, etc.
But that’s a silly argument: The labels have also been trying to negotiate a deal with Project Playlist for some time, which is why investor Bob Pittman sank up to $20 million into the company earlier this year and former Facebook executive Owen Van Natta came aboard as CEO last month. I’m told that those talks had reached advanced stages this month.
So that leaves us with two possible conclusions:
- This is just another negotiating move by the labels, which have previously sued Web services before partnering with them (see: Warner/Imeem, Universal/MySpace). But since they’ve already sued Project Playlist, cutting off their oxygen is more effective.
- The labels have decided that ad-supported, free music services like MySpace Music, Imeem and Project Playlist just aren’t going to work, period, and that’s there’s no point in even trying to let new ones thrive.
For now, I’m going with No. 1, just because it’s the most obvious answer. But I’m willing to hear other arguments: Sound off in comments below or drop me a line at peter@allthingsd.com.
Comments
Peter,
Great post. I’m curious to see how long it will take the labels to reach your conclusion #2. Given Pittman’s backing, I’d argue for #1 also, but unless the labels are willing to reduce the rumored rate of ~$0.005 ($5 CPM per song) to something quite a bit lower, it’s hard to believe there’s a viable model here. Pandora can barely make it work at 28% of that rate ($0.0014), and it’s supposedly getting solid CPMs through sponsorship deals (presumably much better than a social network like imeem can garner).
OTOH, if I were a label exec, I would be unwilling to go much lower for on-demand streaming rates, particularly in view of the phenomenal take-up of Pandora on the iPhone. After all, a well-designed Project Playlist app for the iPhone means downloads are increasingly unnecessary for a meaningful segment of the market, so streaming royalties would need to offset potential cannibalization.
A starting point in the math might be: “How many times does the average buyer of a download listen to it over time?” Ignoring proper DCF analysis, if the answer is 120, then one could argue the labels have already priced on-demand streaming correctly (i.e. ~60 cent wholesale margin on downloads / 120 = $0.005).
There’s more to it than this, of course, as many people who would never have purchased the track will in fact stream it. But it’s difficult to estimate this incremental benefit, and also how often people simply use PP for discovery, and then go download it (and how those downloads in turn break out between iTMS/Amzn vs BitTorrent or similar).
Posted by David Porter at December 24th, 2008 at 11:29 pm