reactions to ad-sponsored music

My earlier blog entry on the economics of ad-sponsored on-demand music was reblogged on Silicon Alley Insider.

One thing that I should point out is that SAI did some rewrites and though these were mainly improvements to tighten up and clarifying the writing, the new headline is something I would never say: Ad-sponsored music won’t work. Blame the labels. I don’t think either of those statements is true. I think that the future size of the recording industry is determined by how much of the online ad industry it can slice off, with a bit of upside for soundtracks and per-unit sales. I think that the labels are caught in their own very real economics and contractual obligations and are making plausible business decisions within their constraints.

The comments over at SAI are an excellent in-depth discussion from industry notables, and are worth reading through to get a more detailed view of the situation. There were two that I want to respond to here.

Michael said: If an ad supported music business wants to experiment they should pay for that, otherwise plenty of time for labels to wait until a viable business emerges. So really no pressure there to make a deal.

This is a very significant consensus within the recording industry. It means that the labels are just waiting for some internet music business to survive the gauntlet. They cash in here and there, losing value in tandem, and patiently working through round after round of dead internet music startups until one is hardy enough to last. What this means for on-demand ad-sponsored music is that, as I said in the comments at SAI, I think that iMeem etc can’t sustain at the current rates, and we’ll have to wait for the next generation of royalty rates (and possibly startups) before ad-supported streams are an important business.

Devon Copley said:

In the near term, though, I think the relative “success” of iTunes — in Western markets, anyway — makes it difficult for the majors to embrace such a model for on-demand. There’s just too much likelihood of cannibalization. How many of those 700 plays actually substitute for an iTunes purchase? If that number >1, then they’re going to need to see more than 700x revenue per play — maybe much more.

The issue of volume is crucial. Two things have to happen. One, an internet music product has to be cashflow-positive on plays, so that growth doesn’t kill it. Two, listeners have to embrace ad-sponsored on-demand plays for catalog that they wouldn’t pay for at all, so that completely unmonetized listening becomes monetized. (For example, by doing on-demand plays of weaker album cuts that nobody is buying at the iTunes store).

One thought on “reactions to ad-sponsored music

  1. I was very impressed by the comments to the article. Although many of them staked out different positions than you did, the points of discussion were in a radius of ideas that permitted a useful dialogue.

    I think that ad-based may work, but your point is that the current models/rates don’t work.

    I have no personal interest in making money from music, but I think of that “critical mass” for an artist. I think of David Byrne’s weblog post about Issa (‘nee Jane Siberry) “calling his bluff” about when he said technology changes everything. Her point was that to get the sound she needs, she still needs 40K of studio time.

    The “critical mass” to which I refer is what mode it would take for an artist to achieve
    a 40K expense return plus a return per album that makes it worth pursuing. It’s clear to me that ad-generated revenue as it stands now or as it could conceivably stand would not be enough to equal this sum. But I can imagine that it could be one tool, along with licensing and performance, upon which one could build a career.

    The point you’re making in the article is that the structure is not there now. That seems inarguable to me–you’re right and succinct on the point. The thing less clear to me is whether
    a restructure is easily achievable.

    For me, of course, it’s academic, as I do “parlor music”. But I’d like to see the Kristin Hersh’s of the world make a living doing this, so it’s interesting.

    In a side note, this interview is interesting and links into all this thinking somewhere:

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