Bebo Sale: Who pays the piper?

Writing in the New York Times, songwriter Billy Bragg raises several important questions about money and music in the context of the sale of music-focused social networking site Bebo, which was recently purchased by Time Warner for $850 million.

As we noted yesterday discussing how dividing Facebook revenues amongst all the participants in that social network would yield very little to each person, it is important to put some of these big money deals in context.

I am totally in agreement with those that suggest the "right answer" is to find ways to bring the content producers into the equation by giving them equity stakes in the projects they help to build. However it is also important to understand the needs of investors who have little incentive to pump cash into projects unless their equity stake is reasonably in line with the investment.

Rightly or wrongly, music is cheap and money is expensive, so it is not reasonable to expect venture capital to flow unless equity is delivered. Of course in the case of Bebo the founders reaped the giant money and their main contribution was the *idea and excellent implementation" of a musical social community. How do you value that idea compared to the value of the musical contributions?

Bragg writes:

The musicians who posted their work on Bebo.com are no different from investors in a start-up enterprise. Their investment is the content provided for free while the site has no liquid assets. Now that the business has reaped huge benefits, surely they deserve a dividend.

Yes, a dividend but no, this is not like investment of capital. Even if the online company fails (and most do fail), the musicians get something of value which is distribution and promotion of their work. Since they don't give up their rights to pull the work and move on to greener pastures (or more importantly promote themselves at all networks all the time), their is effectively zero risk to the musicians in these equations. Risk lies at the heart of what makes investment equations difficult, so generally as you eliminate the risk you must reduce the rewards if you want to maintain a successful business ecosystem.

The claim that sites such as MySpace and Bebo are doing us a favor by promoting our work is disingenuous. Radio stations also promote our work, but they pay us a royalty that recognizes our contribution to their business. Why should that not apply to the Internet, too?

Not disingenuous, but probably incomplete to suggest that exposure is all the artist should get. Royalties should be integrated into the risk and reward equation we are talking about above. This isn't about fairness as much as it is about creating systems that can work to deliver the goods to people. Without that, nobody will make any money.

I think Bragg's point here about compensation is basically valid. The best models will find a way to get money flowing to artists in proportion to their contribution to the social network. Given that music consumers are the big winners in the current system through free downloads both legal and illegal, I think it would be optimal to find better ways for musical consumers to pitch more cash into the social networking equation, perhaps in exchange for greater social networking privileges such as insider interactions with the artists, pre-release music, and more.

What social networking features would get you to happily pay more for your music?