Raja Jasti’s Blog - Renaissance Thinking

April 14, 2009

Warner Music regrets Myspace Music deal?

Filed under: Entertainment, Internet, Media — Tags: , , — Raja @ 11:23 pm

Mike Arrington reports that warner music may be regretting its deal with myspace.

One thing is for certain - the six month old MySpace Music project is throwing off a lot of cash to the labels. That’s because MySpace’s 75 million or so U.S. users are streaming literally billions of songs a month at various streaming rates ranging as high as half a cent per play (although most streams are likely much less).

Labels are known to give streaming rates as low as half a cent per song play, and journalists have tried repeatedly to understand the rates that MySpace is paying since the volume means lots of dollars are at stake. MySpace has always guarded this information closely, since it’s a competitively valuable piece of information. But there’s another reason they may be so secretive - the deals they cut with the four big labels may all be very different. And the deal they cut with at least one label, Warner Music, may not have streaming rates at all.

Our sources say Warner has been complaining about the deal they did with MySpace. That deal has no per song streaming cost, but includes a revenue share on advertising displayed when the song is played. That revenue share hasn’t been what they thought it would be. And the staggering number of plays of songs from their catalog, combined with their newly acquired knowledge that their competitors are being paid per stream, has left them steaming mad.

I think music labels need to be patient with the web music revenues and should not demand exorbitant streaming costs. So I actually think warner music’s deal with myspace is the kind every label should have with them. If they are paying a lot more cash to the other labels when comapred to warner music, then there is a problem.

April 5, 2009

Chinese social monetization

Filed under: Internet, Media, Trends — Tags: , , , — Raja @ 8:36 am

A guest post on techcrunch has a market analysis on chinese social networks doing a better job of monetizing than myspace and facebook.

Despite China’s massively growing internet market, international giants like Google and Facebook are having trouble making gains with the 300 million Chinese online users. China’s netizens are on average very young – 66.7 % of them are younger than 29 years old and 35.2 % of them are teenagers—with social networking and entertainment applications being the most popular.

While companies like Facebook struggle to conquer market share in China and to create viable business models everywhere, their Chinese clones have built lucrative cash machines literally earning billions of dollars a year. Unfortunately, adopting Chinese methods may not help American social networks due both to cultural differences in Chinese user behavior and industry practices. Below is our analysis of the Chinese social networking scene.

What can Facebook and Western social networks learn, if anything?

If monetizing a social network is so easy, then why hasn’t Facebook opened up its payment API to third party developers? While the aggressive and intrusive hyper-viral aspects of the apps in China may not be replicable in a Western Market, the problems for creating a more viable business model run deeper. Western companies cannot innovate in the same way due to institutional problems stemming from their own struggle for an identity and revenue.

Facebook has just recently announced a “credits” system, but it seems to miss the mark. The new system demonstrates little incentive for users to shell over money, and does not speak to the same need as paying for a social application that all your friends are already on and talking about. Facebook may be afraid to become a marketplace for applications, because they are reluctant to be labeled as a social gaming network or a social app store. Instead, they are a self-styled guru of dynamic human interaction. If they opened up their platform to become an apps store, their major revenue streams would put them into a pigeonhole, calling their $15 billion valuation into question. They obviously don’t want to be labeled as a “gaming platform” either, and don’t want to fully depend on selling digital trinkets.

Like during the American gold rush in 1849, where Chinese merchants prospered while most prospectors went bust in search of striking gold, it appears that building viable, scalable businesses for Social Networking sites may still be an ancient Chinese secret for Westerners.

March 17, 2009

Social network blues

Filed under: Internet — Tags: , — Raja @ 8:23 am

It seems like challenges in monetizing social networks is hitting home.

They are expected to see slowed ad growth acording to a report from eMarketer.

Advertising-spending growth on social networks is going to take a major hit amid the recession and the sites’ continued struggle to develop effective ad models, according to a new report from research firm eMarketer.

The firm plans to release on Wednesday its revised projections for global ad spending on social networks. It forecasts an increase this year of 17%, to an estimated $2.3 billion. While any growth in the otherwise dismal ad market is a bright spot, the projection is just over half the 32% growth rate the research firm previously projected. In the U.S., ad spending on social networks is expected to increase 10.2%, reaching $1.3 billion this year.

There are rumours that there will be ’sizable’ layoffs coming to Myspace.

Pali Research analyst Rich Greenfield says “sizable layoffs” are coming to Fox Interactive. Mostly this has to do with Google being unlikely to renew its search deal with the News Corp. (NWS) property when it expires in 2010.

March 10, 2009

Monetizing the web

Filed under: Internet, Media — Tags: , , , , , , , — Raja @ 1:39 pm

Enough has been written about the cratering advertising market and its impact on the survival of web 2.0 companies.

Eric Schmidt in his interview on Charlie Rose, made some interesting observations about monetizing web media. He said advertising works well for sites that have say 20B of uniques. He suggests micro payments as a viable model for sites that have say 20M uniques and subscription model for niche sites that have even fewer users.

Today Bill Gurley, a VC at benchmark capital, wrote an interesting post on monetizing the social networks. He thinks social networking sites such as facebook and myspace should take a look at chinese IM company called tencent for how to better monetize their users. He thinks that the secret to cracking the code on monetizing social networks lies in digital goods (micro payments) and casual games (subscriptions).

The takeaways are quite straightforward.  The amount of advertising revenue on an adjusted basis at TenCent ($2.08) is quite similar to Facebook ($2.44) and MySpace ($5.85) (some may wonder why MySpace ad revenue per user is higher than Facebook – many believe they are more aggressive with ad placement and insertion).  The key difference in this comparison is obviously the revenue TenCent generates with business models that are largely absent on both Facebook and MySpace — digital items and casual game revenue.  For every $2 of adjusted advertising revenue TenCent has per user per year, they generate $17 in other revenue streams.  Benchmark Capital has invested in two private companies in the social/virtual world space – SecondLife and Gaia Online.  In both cases, the company revenues are significant, and in both cases advertising is not the leading business model.

I think Eric Schmidt and Bill Gurley may be on to something.

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