Continuing my bid to provide more fuel for the ‘music should be free’ fire this is the second in my short series of ‘Music Myths, Misconceptions and Mistakes’ posts, tackling one big ‘free’ issue at a time. Today’s topic is Ad Supported (yesterday’s post on File Sharing can be found here).
Ad Supported: 10 Mistakes, Myths and Misconceptions
- Myth: All music will be free and supported by advertising in the future. There simply isn’t enough online ad revenue to go round. In 2007 the entire European online ad market was exactly the same size as the entire European music market (€ 7.7 billion)
- Mistake: Charging the 1st generation of ad supported download services too much for their licenses Qtrax and Spiral Frog clearly have their flaws but they were further impeded by excessively high rights fees. Ad supported rates need to sit somewhere between radio and premium download rate levels, skewed strongly to the former.
- Misconception: Spiral Frog and Qtrax flopped, Ad Supported is dead. A) first movers rarely win, early followers typically do, so wait for the next breed B) where downloads have stumbled streaming has flourished cf MySpace in the US, Last.FM, imeem
- Misconception: Ad supported downloads will cannibalize premium downloads pt1. Users of ad supported download services tolerate restriction on use, sound quality, catalogue etc. in return for no fee. Most of those willing to pay do so because they want the quality etc. Otherwise they’d file share.
- Misconception: Ad supported downloads will cannibalize premium downloads pt2. Apple owns 80% of the premium download market. Ad supported download services aren’t compatible with iPods.
- Misconception: Ad supported streaming weakens the premium download market. Last.FM, imeem etc are entirely complementary to premium downloads, indeed one could argue they have a symbiotic relationship with premium downloads
- Mistake: Trying to charge for streaming music. Ad supported streaming does though, destroy the market for premium streaming services such as Napster and Rhapsody. These services need a fundamental rethink e.g. 100% DRM-free for an upfront annual fee.
- Mistake: Excessive restrictions on number of plays per artist per hour etc. DMCA restrictions on ad supported streaming confuse online with traditional radio are ignorant of the fact that online is an on-demand medium. Ultimately the playground should level so that there is one broad category of on demand streaming alongside pure simulcast radio
- Myth: Consumers won’t buy music anymore if they listen to ad supported streaming. The social music services actually drive music discovery and purchase. Last.FM has strong affiliate relationships with iTunes etc
- Myth: Apple will launch an ad supported streaming service integrated into iTunes and iPhone and iPod touch, using Genius to drive Audio Scrobbler-type functionality. This is one myth I hope comes true J
November 19, 2008 at 11:12 am
#1 Is still possible, just about, but only if the music industry were to shrink enormously so as to be a viable size to be funded by advertising.
I’d categorise this one as a ‘mistake’ to try to go down the road of using advertising exclusively generate music revenues, rather than ‘myth’.
November 19, 2008 at 12:10 pm
I’d agree with Ian, and add that although growth is predicted to slow, there’s still some growth in online advertising, and will be for some time yet – particularly in conjunction with new revenue streams and ad models.
Giving a free download with a banner ad slapped above it isn’t necessarily the best way to monetise content.
November 19, 2008 at 7:24 pm
The music biz is extremely volatile right now and I would hesitate to make any predictions about how it’s going to shake out, except that most dreams of making loads of money with ad-supported music are probably just dreams and that a few will make tons of money.
Don’t put all your eggs in one basket.
November 20, 2008 at 1:50 pm
the real money to be made in the music industry today is if the labels supported a model that would monetize illegal file sharing sites, estimates losses last year by the music industry to p2p are at 69 BILLION ,Qtrax is the only start up with a mechanism in place to take advantage of this vast untapped revenue but the major labels (especially sony and warner)dont get it, until they do ,they will continue to loose.
November 20, 2008 at 3:45 pm
Hi,
I think that ad supported models will be key to the future. To be honest, don’t you think that more and more people are consuming music by streaming anyway? I think premium downloads may go away. All you need to do is get the right hardware equipment and you can stream any playlist through your stereo and the sound can be enhanced. Don’t know.
I think you are right about these high premiums that new sites have had to pay for the rights to catalogues of major labels and also the publishers. But, this will have to disappear very soon because the labels are going to have to realise that some of these new models can be extremely interesting for them.
One of the very new models is kerchoonz.com who seem to have the social networking side and the advertising model worked out pretty will so that the actual advertising generated for a ‘free’ download (ad-funded) is around 20cents US. They plan to pay 1penny per stream as well.
I think that sites that act as a social network and do the ad-funding have a bigger market and audience to make ad-funded downloads and streams possible. More users=more pages= more ad revenue. The likelihood of success will depend on how hard they are hit by the major labels to get their catologue though. I think that the majors are a bit daft to think that thie 99cent premium download will go on much longer. But, it’s already good to see that they are easing off with the DRM.
I don’t think that monetising illegal download sites will be the answer. That is like condoning something that they have been so avidly fighting against and then rolling over and dying.
Their deals with Qtrax were a big step in the right direction; however, it’s unsure how Qtrax is going to be able to properly monetise. There is also the We7 model where albums can be played entirely with adverts in between the streams which is more like an online radio. Personally, I would rather not listen to adverts in between. But, it’s a good idea anyway. It will be interesting to see how these sites get on in the future. I think it’s very important to support them all because they are taking steps for the better in this evolutionary digital saga. I’m keen on keeping my eye on kerchoonz because the social media potential seems to be the way to go.
November 21, 2008 at 3:42 am
Mark -
Ad-supported music is not on-line advertising. Saying there isn’at enough online ad revenue to fund ad-supported music is as much a non-sequitor as saying there isn’t enough outdoor ad revenue to fund television advertising.
Ad-supported music is not about inserting an ad in an audio stream or grafting an ad to the beginning of a track. It is about creating a new experience between music, content and advertising.
The surface of ad-supported music has not yet been scratched.
Marc Cohen
Ad-Supported Music Central Blog
November 21, 2008 at 4:19 am
#6 and #9 address music discovery and the purchases that arise from exposure. but i think you are too easily ignoring the ability of streaming services to act as a substitute for purchased music. sure, last.fm leads to some purchases, but are enough purchases displaced to result in a net loss?
March 31, 2009 at 5:34 pm
Thanks for pushing out more ad-supported music information to the World!
Sincerely,
The Songnumbers Team
(PS, we just launched BETA 2 of our site!)