All Things Digital

Really, an album that someone worked on for two years–is that worth only $9, $10, when people pay two bucks for coffee in Starbucks? People never really understand what’s happening to the artists. All the sharing of the music, right? Is it correct that people share their music, fill up these devices with music they haven’t paid for? If you had Coca-Cola coming through the faucet in your kitchen, how much would you be willing to pay for Coca-Cola? There you go. That’s what happened to the record business.”

–UMG CEO Doug Morris, Wired, Nov. 27

Offering its entire catalog of digitized video and music for free to the 19 million users of an upstart social-networking site was once about the furthest thing from Universal Music Group’s mind. Now, with the Internet rejiggering the music industry’s economic structure, it’s at the very top of it.

And so this morning, UMG said it would allow members of social network Imeem to stream its music for no charge, in exchange for a cut of the revenue from advertising aired while songs are playing. “Imeem has developed an innovative way to make our artists’ music a central part of the social-networking experience,” UMG CEO Doug Morris said in a statement. “They’ve done so the right way–by working with UMG to provide an exciting musical experience for consumers, while ensuring that our artists are fairly compensated.”

And ensuring that UMG is fairly compensated as well. As part of the deal, the company will get an equity stake in Imeem and is rumored to have received an upfront payment of more than $20 million.

UMG is the last of the ‘big four’ major labels to ink such a deal with Imeem, following in the footsteps of Warner Music Group, Sony BMG and EMI. All four majors–quite an achievement for a company that this past summer didn’t have a deal with any of them. Seems the music industry isn’t quite as wary of advertising-supported business models as it once was. “2008 is going to be the year of music labels trying to put themselves in front of everyone, no matter what business model it takes,” Forrester analyst James McQuivey told CNNMoney. “The labels have realized that you have to be everywhere on the Web, because the customer is everywhere. You need to put yourself in front of them when they make their entertainment decisions.”

There can’t be any more deep technology in Facebook than what dozens of people could write in a couple of years. I think these things are going to have some legs, and yet there’s a … faddish nature about anything that appeals to younger people.”

–Microsoft CEO Steve Ballmer, Oct. 2

“So how’s that Facebook deal working out for you?” Web 2.0 Summit conference program chair John Battelle asked Microsoft CEO Steve Ballmer last week. “Are you making money?”

“Rumor has it that we’re not,” Ballmer replied, adding “Mark [Zuckerberg, Facebook CEO] says we’re happy with it, so I guess we’re happy with it.”

Or, rather, happy enough. Because Microsoft has beaten Google out for an ownership stake in Facebook in a just-announced deal (see below).

Horrifyingly to those who are scrutinizing it, the deal puts Facebook’s valuation at around $15 billion.

UPDATE:
According to the release that just landed in my inbox, Microsoft is taking a $240 million equity stake in Facebook.

Facebook and Microsoft Expand Strategic Alliance

Microsoft to take equity stake in Facebook; companies expand advertising deal to cover international markets.

“Palo Alto, Calif., and Redmond, Wash.–Oct. 24–Facebook and Microsoft Corp. today announced that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation, and the companies will expand their existing advertising partnership. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States. Financial terms were not disclosed.

“ ‘We are pleased to take our Microsoft partnership to the next level,’ said Owen Van Natta, vice president of operations and chief revenue officer at Facebook. ‘We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook.’

“ ‘Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only our two companies, but also our collective users and advertisers,’ said Kevin Johnson, president of the Platforms and Services Division at Microsoft. ‘We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.’ ”