Last100: Can Ad-Supported Digital Music Work?
With the high profile launch this week of Qtrax, a free and legal P2P music offering (ReadWriteWeb coverage), ad-supported music downloads are very much in the spotlight, and as always RWW network blog last100 has its finger on the pulse, with great news coverage and analysis of the week that was in digital music, including an exclusive interview with the CEO of a large ad-supported music web site.
Following Qtrax's bungled launch, and an admission that the company had in fact only persuaded one out of the four record major labels to sign on, despite publicly stating otherwise, last100 asks if a free music download service on the scale of Qtrax is too good to be true?
If Apple can't persuade all four majors to license their catalogs for DRM-free paid-for downloads, and even Amazon, seen as the company most likely to rescue the music industry away from the grip of Apple, is only able to do so on a trial basis (with regards to Universal and Sony BMG at least), then what chance does Qtrax have with an almost completely new and unproven model.
To put this into even greater perspective, both SpiralFrog (see last100's review) and We7, two services that have offered ad-supported music downloads for significantly longer, are only able to offer a catalog ofaround half a million tracks eachof a million and a half million tracks, respectively. Why? Because the labels are far from convinced that advertising dollars can ever replace revenue from paid-for downloads or CD sales.
In a followup post today, last100 scored an exclusive interesting Q&A with We7 CEO Steve Purdham. UK-based We7, backed by Peter Gabriel, enables users to download free MP3s that have a short (and targeted) audio advert embedded at the start of each track. The ads then auto-expire after four weeks of listening, allowing users to re-download the same tracks ad-free.
Purdham talks on a range of issues including the company's mission, DRM, resistance by the major labels, new business models and We7's competitors.
On the major labels reluctance to embrace ad-supported music downloads, Purdham says the reason is "simple:"
"They are worried that if they leave the iTunes model, the revenues they get will be diminished. So out of 79p they get, say, 46p and they are worried that ad [supported models] will net a lot less. However, there is a realization that in a world where for every track sold by iTunes... 10 tracks are downloaded illegally with no payment, so the real track revenue is 4.6p. Ad funded models need to show they are additive on the whole or scale to make the total cash available higher than before."
And asked whether Qtrax's service is too good to be true, Purdham comments:
"Well let's just say the reports seem to suggest so, which is a shame as I want to see more ad models appear and then the winners are the ones that execute well. The strange situation with Qtrax, and Spiralfrog last year, do nothing for the cause. There are many big questions that are hanging over Qtrax which needn't have been there but I hope they don't destroy the opportunity for the rest of us."
You can read the rest of the interview over at last100, and don't forget to subscribe to the RSS feed to get the latest digital lifestyle news and analysis.
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> in a world where for every track sold by iTunes... 10 >tracks are downloaded illegally with no payment, so the real >track revenue is 4.6p.
As per the earlier R/W/W on the majors calculation of lost revenue, this sort of argument is always fallacious, and I remember the same one being made with regards tapes. Each download is not a lost sale.
I would guess that the true picture would be roughly equivalent to the total decline in revenue for recorded music (allowing for some year-to-year variation - some years there are more hits than others, equally people's level of discretionary spend also changes) - that would be actually measuring LOST sales rather than pretending that a 13 year old kid actually has the money to buy what they're downloading.
As for the general point on wanting to see more ad-funded models - the current ones all sound way too complex. Also there's little explanation as to what they offer customers (other than legality) or that - as with music rental - that customers want it. And that is surely the KEY point to a business model. [And I do worry that about the way advertising revenue seems to be about the only way anyone can think of to monetise anything, as if it were somehow infinite. Or indeed not actually coming from consumers anyway].
A simple approach that I think might work would be to combine something like last.fm with commercial radio advertising. Basically, 'Radio Me'. With the improved level of customer targeting you'd be able to charge higher rates that commercial radio. But then we've got used to streaming stations w/out adverts now.
Posted by: JulesLt | January 31, 2008 5:51 AM
Just to clarify; SpiralFrog has over 1 million tracks, We7 has about 80,000.
To confirm this information for yourself, SpiralFrog's homepage says how many tracks it has, and We7's CEO did an interview here http://www.last100.com/2008/01/30/qa-we7-ceo-steve-purdham/ stating how many songs they have.
Please, check your stats before posting an incorrect statement from "the CEO of a large ad-supported music web site."
Posted by: Gordon | January 31, 2008 6:55 AM
@Gordon: 80,000 tracks is large in my book. That's all semantics, unless you can point to me a page that definitively and universally defines the word "large" based on the number of tracks a music site has for download......
Had we said "largest," then perhaps it would be incorrect... but we said large, which it is -- and number of tracks available isn't the only metric to measure that, by the way.
Posted by: Josh Catone
|
January 31, 2008 10:23 AM
The latest attempt at new music distribution is to give the music away free.... see SpiralFrog or QTrax. Unfortunately, this is unsustainable from a cost/revenue perspective, and counterproductive to the music retail market. The digital ad
industry is simply not big enough to support the digital music industry.
Digital music market is now at $30 billion and rising (including illegal downloads). While digital advertising is only at $20 billion and slowing.
There's an excellent analysis at Brooding Savage blog.
http://www.BroodingSavage.com/journal/2008/2/7/ad-supported-music-1.html
Posted by: Bill | February 9, 2008 5:09 AM
These models work if the consumers only concern is price. For the amount of music I download I value my privacy over the money it would cost each to pay for music.
Format also has a lot to do with it. Even though this service claims to be compatible with songs download from itunes I have to wonder how long that will actually last.
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