NYT: Facebook to Offer Path to Media

September 18, 2011


For cloud-based digital music services like Spotify and Rhapsody, which stream millions of songs but have struggled to sign up large numbers of paying users, being friended by Facebook could prove to be a mixed blessing.

This week, according to numerous media and technology executives, Facebook will unveil a media platform that will allow people to easily share their favorite music, television shows and movies, effectively making the basic profile page a primary entertainment hub.

Facebook, which has more than 750 million users, has not revealed its plans, but the company is widely expected to announce the service at its F8 developers’ conference in San Francisco on Thursday.

By putting them in front of millions of users, Facebook’s new platform could introduce the music services to vast new audiences. “If it works the way it is supposed to, it would be the nirvana of interoperability,” said Ted Cohen, a consultant and former digital executive for a major label.

But the new plan will ratchet up the competitive pressure on these fledgling services, forcing them to offer more free music as enticements to new users.

According to the media and technology executives, who spoke on condition of anonymity because the deals were private, Facebook has made agreements with a number of media companies to develop a way for a user’s profile page to display whatever entertainment he is consuming on those outside services. Links that appear on a widget or tab, or as part of a user’s news feed, would point a curious friend directly to the content.

Spotify and Rhapsody, along with their smaller competitors Rdio, MOG and the French company Deezer, are said to be among the 10 or so music services that will be part of the service at its introduction; Vevo, the music video site, is another. A Facebook spokesman declined to comment, and media executives cautioned that details of the plan could change.

Spotify is the largest of these services with more than 10 million users, according to its most recent reporting. The service began in Europe in 2008 and arrived in the United States in July, after protracted negotiations with the major record labels over its “freemium” structure, which lets people listen to music free, with advertising, or pay $5 or $10 a month for an ad-free version.

Rdio and MOG, which charge $5 and $10 a month for subscriptions, announced free versions last week in an effort to compete with Spotify. And Rhapsody, whose service costs $10 and $15 a month, has just introduced an array of social features centered on Facebook.

The companies declined to answer questions about Facebook’s media platform. And David Hyman, MOG’s founder and chief executive, said that the development of his company’s free tier far predated Spotify’s entry into the United States.

But Mr. Hyman said that the change was being made to reduce the “friction” a nonsubscriber experiences when following a link posted by a paying user. Instead of hearing the song, the nonsubscriber would reach a page asking to sign up with a credit card — an annoyance for many potential customers.

“In the Internet world, any minuscule piece of friction blows people’s minds,” he said.

MOG provides new users with a “gas tank” of free music — supported by advertising — that increases with that user’s social activity on the site, like sharing playlists or inviting friends. Rdio’s free music will come ad-free.

Neither company would say exactly how much free music would be made available.

“We don’t want to force you to look at or listen to ads that will distract you from enjoying music,” said Carter Adamson, Rdio’s chief operating officer, “and we don’t want you to spam your friends to get more free.”

But even free music requires royalty payments to record companies — typically some fraction of a cent per stream — and some investors and technology executives are concerned that Facebook’s platform may bring in large numbers of users who are willing to listen to some free music but are not being given much incentive to subscribe. That might make success more difficult for services that have less favorable deals with record companies.

David Pakman, a partner in the venture capital firm Venrock and a former chief executive of the digital service eMusic, also said that instead of giving smaller companies a boost, the mathematics of Facebook’s hundreds of millions of links might simply allow the largest service to dominate all the others.

“It favors the big over the small,” Mr. Pakman said. “It’s a good thing for all services in that it lets them all participate. But the small guys will lose network effects, and the big guys will gain it.”

Spotify has not updated its user numbers since arriving in the United States, but music executives say it quickly drew more than 100,000 customers to its paid service alone.

MOG and Rdio have not reported their numbers, but music executives say their tallies are well under 100,000.

Not all the services involved in the Facebook platform are going free. Rhapsody, which was founded 10 years ago and has 800,000 subscribers, is sticking to its monthly subscription rate, said Jon Irwin, the company’s president.

“Our belief is that the cost of the content cannot be fully offset by the advertising dollars you can generate,” Mr. Irwin said, “and that the subsequent conversion of somebody to a paying subscriber because they’ve been able to listen to content for free on a desktop is not at a level that supports the losses you’ll incur on the advertising side.”

Mr. Irwin also believes that Facebook will further intensify the competition among the cloud services, and that Spotify and his own company will have the advantage.

“It’s going to be hard for the players not at scale to survive,” he said. “You’re looking at a two-horse race.”

See full article at: http://www.nytimes.com/2011/09/19/business/media/facebook-is-expected-to-unveil-media-sharing-service.html

Posted by Ted • Sunday, September 18, 2011 .