Guest Post: What’s the Future for Ad-Funded Music Services?

Today we have the first in a short series of guest posts by leading music industry consultant Keith Jopling.

Keith is also one of the panel of judges for the Music Industry Blog Start Up Showcase and you can view Keith’s bio on the Start Up Showcase page here.


What’s the Future for Ad-Funded Music Services?

I recently gave a short talk at the IAB entitled “What could happen if the music market truly opened up to advertising?” The point of the talk wasn’t to answer that questions exactly (who could?), but to explore why ‘ad-funded’ music is less of a buzz these days. It was an opportunity to reflect why ad-funded hasn’t delivered on the heady expectations back when it all started in 2005/6.

The IAB event was back in May and since then there have been one or two developments and fresh comment. Most significantly, the UK’s number two ad-funded music streaming service, We7 was bought by Tesco for £10.8m – presumably in time, re-positioning the ad-funded pure-play music service to something of added-value to Tesco music buyers (and presumably, no longer funded by ads). Watch that space.

I also read something from Alexis van de Wyer, President of AdsWizz Inc, suggesting that Spotify had taken its eye firmly off the ad-funded ball and become too focused on premium subscriptions and partnerships for its API platform. I’m not one to doubt the brilliance of Spotify’s strategic plays but I thought this was an interesting viewpoint (even if it was a thinly disguised sales pitch from an advertising salesman).

In its early stages Spotify would wax lyrical about ‘new advertising products’ and various forms of innovation in online advertising. But did it sometimes feel like there really wasn’t much advertising on Spotify, or for that matter, innovation in ad formats? With several strategic shifts since it does to some extent look as though Spotify has accepted that ad-funding isn’t a primary revenue model – but more a springboard to other revenue streams (the so called freemium model).

Wherever this takes Spotify, the other question is – where does it leave ad-funded music as a ‘sector’.

The IAB talk highlighted a few facts of note, as follows:

  • The UK online advertising market was worth £4.8 billion in 2001 (the IAB’s official figure)
  • The UK online ads market grew by 14% year-on-year
  • The BPI reported ad-funded music revenues to labels (therefore trade revenues at the labels’ agreed share) of just £11.4m in 2011
  • From the BPI figure – adding in publishing and partner shares – the IAB estimated a total figure for ad-funded music in the UK of circa. £40m

Thus, music’s share of the online advertising market in the UK is well under 1%. As a share of revenues to the music industry (to labels anyway), ad-funded is just under 4%. And it hasn’t grown since 2010.

Why is ad-funded music so small and why is it no longer a growing revenue model?

In a way this is more a European problem. With Pandora generating $250m in advertising revenues in the 2011 and label-backed Vevo bringing in $150m, there are at least two cases studies of success across the pond (provided Pandora can keep it up!).

By mapping the existing music service landscape, it’s possible to make some observations:

  • In music streaming – Spotify and ‘3rd generation players like MOG (also now acquired) and Radio have shifted away from ad-funded
  • In music video ad-funded is still the primary model (for You Tube, Muzu and Vevo for example)
  • In discovery there is a range of models, but the latest buzz start-ups like Soundcloud and Songkick have stayed clear of ad-funded

What mapping current services doesn’t show is the number of promised or planned ad-funded services that have never materialised – including high-profile flops like the notorious Spiral Frog and Qtrax. More recently Oz-based Guvera’s arrival to market seems protracted even though it is still raising investment.

Is there opportunity to re-energise the sector? What is its real potential in Europe?

The IAB seems interested in this space and continues to examine it, so we may hear more views from the advertising camp. But there are at least a few possibilities:

  • In video – original programming and digital music channel creation – exemplified in the UK by the massive successes of SBTV, UKF and the more recent indie play Noisey.com
  • Format Innovation – audio ads have lagged behind other formats such as display and didn’t quite live up to early expectations, but perhaps there are breakthroughs still to come here
  • New markets – with brands now becoming publishers and ‘Content Strategy’ the buzz section of digital marketing plans, it’s only a matter of time before online sync services such as Cue Songs or others can crack-open a scaleable new way to license music to the millions of small scale uses in corporate video, blogs and other branded content

Ad-funded has places to go then, but isn’t the buzz it used to be. But then part of the music industry’s ‘problem’ is the apparent need to pin big hopes on the next panacea. Currently, it’s cloud services enjoying some time in the sun. But what’s really unfolding is a patchwork economy for music, that’s far more interesting to view as a whole.

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6 thoughts on “Guest Post: What’s the Future for Ad-Funded Music Services?

  1. Great article, Keith. What do you think about the potential for advertising revenue as an alternate stream of revenue for indie labels who have a very targeted niche? We’ve found some value from it, especially when we offer a more traditional system of payment — fee per month for placement based on what the market will accept.

    We’ve had several companies approach us about advertising inventory and are setting up for that to happen. It’s currently not automated, but the revenue is very attractive for a small company like ours.

    We target the high end audio/consumer electronic market with our high resolution downloads which has a luxury market attached. But, I could see a how an indie artist or label with a specific segment could benefit from sponsors who were trying to target the same segment. It’s not a billion dollar industry when looking at the artists as grains of sand, but as an entire beach, could advertising be more interesting as a plausible source for revenue?

    What did you think of MOG’s advertising model which benefited writer’s who contributed to their content?

  2. Pingback: What’s the Future for Ad-Funded Music Services? | That Eric Alper

  3. Cookie
    I like the general idea that types of music – in terms of genre, audio quality or whatever other shades of colour – can share a common audience with brands who can advertise to that audience or sponsor the site. That space is under-developed so whatever you are doing there interests me. I do like kick-back models but the numbers have been so small to date it’s close to insulting for artists. As someone who used ad-sense once on my blog, it can get a bit disheartening trading your content for ads when it’s just a few dollars tricking back. I see Moozar is attempting to monetise ‘social activity’ around artists and music now – but again the commercial model here seems unclear to me. We need an avenue to solid revenue streams and equitable sharing – then it might work, yes. Thanks for the comment.

  4. For my 2 cent’s worth: I feel the general music industry is going to be heading more and more visual. (or already is) Looking at just television even adds there are becoming “obsolete” with people not watching those in traditional spaces since the advent of PVR/Digital Video Recorders; not to mention pirate downloads etc where you just forward past them.

    My thinking is product placement more than adds as revenue stream? Has any add agencies really tried to tackle that and approached bands in a big way? Looking at the amounts being spent in movies/series on product placement – I would recon that a music video get watched many more times by a person than a movie, and shared much more as well?

    I dunno if my thinking is too plain/simple, as this makes sense to me……

  5. About Moozar :

    Moozar provides a single reward link for each track. This “reward link” spreads with the track when it’s “liked” and/or “shared” by fans. Check out an example of the set-up at: http://reward-my-music.com/526

    It’ an easy way for Artist to get a reward button everywhere his work is listened to and shared.

    It’s a direct way for fans to financially reward an artist when they enjoy their tracks … on Facebook, Youtube, Souncloud and anywhere it’s listened to and shared …

    Moozar provides a single reward link for each track. Check out an example of the set-up at:

    About terms of use :

    – Any artists, band, label, producer, composer, author, publisher, videomaker … who owns a channel on YouTube, Soundcloud, Dailymotion or Vimeo can suscribe for free.

    – Artists get 100% of the reward when it comes from a link they have posted. Else, partners who post the link get 20%.

    – When a track is a team work ( Musician, producer, composer, author, publisher, … ), the rewards received have to be shared by the beneficiary following the uses of digital sales, if any of them requests it.

    – Everyone can access allinformations (The info about “Who I Reward”, the balance for each title), without being registred.

  6. Pingback: New Models | Hannah Amy Phillips

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