Exploring Digital Content Revenues

As Mpayy continues to look for transactions that its Secure Payments Widget can enable, one industry we considered was digital content. The theory was that a Do-It-Yourself model could be enabled allowing artists to host songs on Mpayy's servers, or somewhere within the cloud that we would enable streaming of the music as a preview, and then download.



Mpayy's model is uniquely well-suited for selling digital content online because we do not require the billing address that is a piece of the Address Verification System associated with credit cards. Thus, the checkout process can be simplified, improving incrementally what is the largest concern of ecommerce retailers of all varieties - simplifying the checkout process to improve cart abandonment rates. In the Do-It-Yourself digital content industry, there are a number of players with varying levels of success, and it begs the question...

Can any Money be Made in Digital Content?

Sonific founder Gerd Leonard announced today that the company will shudder its doors. Sonific's mission included:

Sonific.com and Sonific.net reflects our philosophy that offering better tools for music discovery and providing new, free platforms of exposure is what will really sell music, going forward, and that the viral nature of the Internet is perfectly suited to help get the word out for new and established artists and their music.

Leonard discusses the prohibitively costly option of paying for permission to the largest music studios; it is essentially economic suicide. Thus is the danger of abiding by the law, which is the path Sonific was pursuing.

Sonific's fall comes on the heels of Imeem's acquisition of Snocap, which was Napster founder Shawn Fanning's startup. TechCrunch speculates the sale price was less than $5 million, even though the company raised more than $25 million. Last.fm, which is now pulling in 1.7 million monthly unique visitors according to Quantcast has driven a significant rise in its click-through affiliate based sales with Amazon. However, PaidContent.org cites a Jupiter report revealing that digital sales have compensated less than 1/3 of the loss seen by the music industry since 2004.


MySpace recently concluded a new deal with the studios, but the prospects are questionable, because, according to New Zealand's Stuff:

But the MyStores widget proved a bit of a flop. Slightly more than 100,000 of MySpace's 5 million artists embedded the store on their profile, and few sales followed. What's more, rival Imeem has since acquired Snocap – likely to add its own download-to-own service as well. Expect MySpace to either terminate its Snocap deal outright or simply wait for member artists to dump the app on their own.

Industry-backed iLike is the leading music application on Facebook that also leads through to Amazon and iTunes, though no numbers are released.

The Register article I read that pointed me toward Sonific speculates that it was YouTube's disregard for copyrights led to its success as a home for music video viewership. If that's the case, and those are combined with Chinese sites I StumbleUpon frequently with NO respect for digital rights, do Hulu and MySpace have it right that the only way to get money from digital content consumption is through advertising?

Eyeballs Aren't Enough

I've been having a discussion with an acquaintance who is starting a venture incubator about what startups really need in a strategic partner. He contends that personnel and advice are critical to a startup, and that the proper guidance can make most business models work. My argument is that the foundation HAS to be a solid business model - with very few notable exceptions - or in the long run it will fail, and there are a number of examples out there right now to draw lessons from.

The Many Faces of Social Networking

I've discussed at length the potential overvaluation of many startup companies, and the overcrowding of specific markets caused by the herd mentality. However, that does not stop money from flowing into those markets whether or not they prove profitable.

Three years ago, Fox bought MySpace for $850 million, and Google bought YouTube in 2006 for $1.65 billion. AOL spent the same amount as Fox to buy Bebo last month, and Microsoft's investment in facebook that valued the social network at $15 billion has been widely documented.

As of now, the only business model producing revenue for these companies is advertising, and acquiring companies possess successful advertising businesses that the acquired properties are expected to drive forward. In fact, Google paid Fox News $900 million for the right to sell advertising on the popular MySpace property. Yet, that bet doesn't seem to be panning out, as Investor's Business Daily reports.

The story does say that Fox's revenues from "Other" grew significantly, and guesses that may be related to improved targeting in it advertising.

Targeted Ads to Drive Revenue through IM/Chat?



In the Spring of 2006, I wrote a paper on instant messaging startup Meebo for a Technology Strategy class at the University of Chicago. I'll dig the document out and post it here as soon as I get a chance. The thesis behind our paper was that Meebo's power would leverage the universality of instant messaging by allowing users to log in to multiple instant messaging services at the same time. While there are a number of other services that allow this, meebo's thin-client application was unique in that it would not be blocked by firewalls and download restrictions that businesses put on instant messaging, and users could use meebo through a browser from anywhere. The traffic has certainly come.



While we were correct in our forecast that the company would benefit from the zero costs of homing among instant messaging networks, and meebo would free ride on the dollars that Yahoo, AOL, Hotmail, and others had spent to build out their instant messaging memberships. These features, combined with their successful launch of chat rooms, has generated incredible success. The challenge, we concluded, would be to monetize the traffic for long-term viability.

Meebo has attempted to turn its traffic into a sale to both Fox and AOL at a valuation of around $250 million, but is now searching for a new round of funding at a valuation of $175-200 million. The company has only thus far created around $1 million in revenue.

Meebo hired a Chief Revenue Officer, CNet and Warner Music vet Carter Brokaw, to help it launch its long anticipated advertising offering. According to Read/Write Web,

"Users will be able to opt-in to sponsored experiences that are targeted to them specifically, based on their demographics and behavior. Negative feedback on a particular ad will teach the ad server not to serve the same ad to a particular user and there will be a leader board on the site displaying the most popular ads according to user response.

Meebo says that in tests, they are experiencing 2 to 4% user engagement with these new types of ads, a far higher percentage than banner ads see. "

If meebo can replicate its click-through rate at scale, it will certainly earn a premium for its advertising and could grow into a significant moneymaker. However, if, like on facebook and others, users remain too engaged in the process of networking and chat, rather than commerce and advertising, meebo will continue to struggle to justify its valuation.