Labels Learning It's Takes More Than Music

Record companies are counting on their new deal with MySpace Music to help make up for declining CD sales

by Catherine Holahan

In a small Atlantic Records Group studio in New York, rapper Clifford "T.I." Harris Jr. leans into a silver microphone. "It's the T.I.P. man, the king himself," he says. "Dig this." There's no music on this recording, though, no rhyming lyrics. The Atlanta artist simply talks in his Southern drawl, creating an audio clip that will be posted on his Web site and others across the online universe. The clip and more like it are designed to pull in fans—and generate revenues from advertising on the sites.

Meet the record label, version 2.0. After nearly a decade of plunging music sales, the labels are trying to overhaul their traditional business. Instead of just selling recorded music, they want to use music to sell a range of related extras, from online advertising to mobile phones packed with tunes. The new business model puts the Internet at the heart of the industry in an attempt to transform artist Web sites from promotional vehicles into money-making enterprises.

The biggest bet on this new model is MySpace Music. The joint venture between News Corp.'s social networking site and the three largest record labels—Universal Music Group, Sony BMG Music Entertainment, and Warner Music— launched today.

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