The Hook: Should we give up on the ad-paid digital music model?

20 February 2012

by Lars Brandle

Carter Adamson
Co-founder, Rdio

We thought about this very hard in the beginning. I spent almost eight years at AOL and I saw where ad-riddled businesses go. Experience is our number one focus (at Rdio). We felt that a) audio and visual ads were horrible for the experience and b) didn’t really bring that much to the bottom line. We saw businesses like Imeem and Spiralfrog go bust because the ad revenues didn’t really make up the difference. And in addition to that, there are all the other operational costs that you need, such as your team of ad sales people. In the end, you make a compromise for your service because you need to do a deal with a big advertiser. And that wasn’t where we wanted to go, particularly if it didn’t contribute that much to the bottom line. There are ten years worth of mistakes in this space. So, we are bearish on ad-supported music services and don’t plan to have any ad-supported services. Ever.

Claes Loberg
Founder, Guvera

No. When we launched Guvera, we wanted to create a business model that is positive for the music industry by catching or finding a new market that we can actually get advertisers to pay for. The concept of what we’re doing trying isn’t to convert everybody over, only a small portion. If you look at 100 people in a room and four are buying tracks legitimately, we’re trying to give an alternative to the 96 people who are currently stealing the content. If just six people in that room decided to use a service like Guvera because it was free and it helped the artists, then you’ve eventually got a market that puts twice the revenue of iTunes back to the music industry and a huge market of people that advertisers can have access to. You look at it as something to grow from. Spiralfrog had massive DRM problems; they had the issue of not being able to be played on an iPod. And Qtrax? Well, we learned not to say something until the deal is actually done. Our goal was to move across a small percentage and start educating the market that you can still have it free.

Foad Fadaghi
Research Director, Telsyte

The ad-supported model for music has shown some promise, but as with any new and crowded marketplace there was always going to be winners and losers. The leading players have the added challenge that they’re competing not just with each other, but with other ways consumers currently buy or consume music, which includes downloads and physical formats. There are certainly still question marks around the validity of the model for labels, as the revenues generated by ad-supported services are typically a fraction of the digital download rates. Some independents have also expressed concern that by putting their catalogues on such services, they might actually cannibalise their digital sales. Ad-supported services also go up against the might of YouTube, a destination site for music discovery. Increasingly, YouTube is instigating pre-roll and overlay advertising on music and music video content, proving advertising can work alongside music.

Simon Homer
Owner, Plus One Records

It’s like one of those great ideas, but no one actually figured out the details. And where’s the money? If you’re an indie without a big-arse lawyer then there’s really no expectation you’ll ever get paid. Which makes it all pointless, really. Maybe people should stop thinking about ad-funded models and start thinking about songs and actually start writing good songs again. It’s all bollocks really. They’re all a great example of how fucked the music industry has become. People are trying to make money out of people who haven’t got any money, yet they still try and spend it for them with promises of future money. When you come to collect ‘the promises’ there isn’t anything in the pot o’ gold, as there never was in the first place. Spiralfrog? Isn’t that Silverchair’s debut record?