How Facebook Will Save The Music Industry

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There have always been social networks, but until now there haven’t been any massive ones like Facebook with its 850-million-plus users. This is likely why we’re seeing a ton of new digital music startups that look like they could grow into real businesses, and with the blessing of the labels. Because word of mouth marketing at scale is priceless promotion for record labels.The idea is that if their music isn’t pushed on people by advertisements or radio Djs, but recommended by their friends or someone who’s taste they trust, a sale is more likely. With the rapid growth of social media enabling real-time sharing of massive amounts of content, the music industry has found it’s holy grail – word of mouth marketing at scale.

sceptics could easily say “here we go again” because social media driven digital music companies have launched before only to be crippled by label licenses that proved unprofitable for companies that couldn’t compile a very large number of users. We think it’s different this time around.

Imeem and iLike, launched in 2003 and 2006 respectively, were social media music sites that were very similar to those launching today – platforms for listening to music where friends can share playlists and recommendations. However, neither were able to grow very large audiences to support a digital music business at scale. Both sites had trouble surpassing the 15 Million monthly unique visitor mark. When Spiralfrog launched in 2007 it was hailed as a company that had found a way to pay for free music downloading with advertisements. It shut down a couple years later after accumulating a couple million users and way too much debt.  It joined Ruckus, an ad-supported streaming service focused on college students in the digital music graveyard.

The difference this time around is that digital music companies are not bothering to build their own social networks anymore, they are building their businesses on top of the biggest social media site, and soon to be biggest website, ever – Facebook.   With now almost 1 Billion users who spend an average of seven hours per month on the platform, digital music companies can tap into an audience almost 100-times larger than those they could build on their own social networks just a few years ago.

Spotify uses Facebook Connect to enable users to integrate their friends into the service and have recommendations sent to them according to their friends’ listening habits. In addition, the company partnered with brands like Coke in the US to give away thousands of free subscriptions through the brands’ Facebook pages. Deeper integrations are expected.

Competitor Rdio has integrated sharing tools on Facebook and Twitter directly into its playlists and players, which it says has led to increased subscriber growth since its launch in August 2010. Recently the company has hinted at even deeper integration within Facebook in order to attract a more mainstream audience.

Recent entrant, Turntable.FM, only allowed beta users who were invited by their Facebook friends to use the service. It has since become a bit of a darling in the press and even attracted Lady Gaga as an investor.

In fact, Facebook has long been rumoured to be launching its own music service in partnership with digital music companies like Spotify and Rdio. In July CEO Mark Zuckerberg said Facebook’s future lies in enabling entrepreneurs to build services on top of the Facebook platform, with music being an important one.

Streaming music is not the only digital music company to leverage social media. Ticketing is a natural fit too as word of mouth is often the driving force behind successful live shows. Startup Ticketfly has raised a total of $15 Million after seeing rapid growth in demand initially. Ticketfly offers ticketing services for venues and bands anchored on social media distribution and marketing.

Many digital music companies are leaving 2011 flush with cash. According to Digital Music News digital music companies raised a whopping $400 Million during the first six months of 2011 with some of the larger rounds going to companies with robust social media features or platforms.