Myspace music / Amazon deal

In the upcoming Myspace Music launch, Amazon is likely to be the provider for paid downloads. This is per TechCrunch:

The as-yet unlaunched MySpace Music will likely partner with Amazon to handle all music ecommerce transactions, we’ve heard from multiple sources. Apple and Rhapsody are also bidding for the business, however, and one source says a final decision hasn’t yet been made.

This is a wise decision on Myspace’s part. Rather than building out the entire ecommerce setup, which includes page development, label negotiations, customer support, and transaction handling, they’re offloading it to a partner. It’s a sign of Myspace’s growth as a development organization that they know when to avoid work.

TC also says that:

Music download sales are just one revenue stream for the property. … But downloads are going to be a big part of total revenue, and while margins on music sales are low, the volume could be massive as MySpace directs its traffic to the new site.

I’m skeptical that downloads will ever be a non-trivial revenue source for Myspace. The margins are too low.

Amazon itself doesn’t make anything on them; it makes money on downloads by using them to attract shoppers, and then upselling products with a real margin. For example, a user will click into Amazon to buy a download, see a recommendation for an MP3 player, and buy the MP3 player.

This is the same music strategy used by physical retailers like Best Buy. They sell CDs at close to cost in order to attract shoppers. The shoppers come for the cheapo Guns N Roses and pick up a barbeque, linen set, etc while they’re at the store. And it’s the same strategy used by clubs that do live music. The band gets the door for good or ill, while the club gets the liquor sales.

A smarter band would drop the door charge to maximize their draw and take a piece of the bar instead. And if Myspace gets affiliate revenues on the entire purchase at Amazon rather than just the download sales — which I assume they do — that’s exactly what they’re doing.

Except that the downloads aren’t free, so the funnel into Amazon isn’t as good as it could be. They can’t be free because that’s how the labels and musicians get paid. On the door.