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Digital
Are ad-funded services viable? Can the industry upsell to subscriptions?
By CMU Editorial | Published on Tuesday 26 January 2010
Much chatter at MIDEM this year about the sustainability of ad-funded free streaming services – so Spotify for those in Europe, or the likes of MySpace Music in territories where the green one is yet to launch, like the US.
The worry seems to be that ad-funded services alone are not big enough to sustain the digital music industry. Few seem confident such services will ever generate ad revenues significant enough to maintain what loss-making start ups are currently handing over to the record labels and music publishers (or what said labels and publishers are expecting to receive in the long term), and even if they do, they will probably only do so by stealing ad revenues off the radio sector, the traditional (but often not talked about) way that the ad industry’s pound reaches the record industry’s pockets.
Subscription-based streaming services are the future, everyone seems to agree, but the fear is that some of the free-to-use services are so good that it will now be hard to upgrade users to pay-to-use premium platforms. I assume when people say that they mean Spotify. I don’t think anyone would ever accuse MySpace Music of being “so good”.
According to Billboard, Warner Music digital man Stephen Bryan told MIDEM: “We want to do more as a music company to make the paid services as attractive as they possibly can be relative to free options. The ad-supported side needs to be engaging enough to provide the opportunity to up-sell. But we believe we should be doing more to ensure we’re not undermining the paid service by creating a service so compelling that they don’t see enough value in taking consumers to the paid service”.
Though Spotify boss Daniel Ek preceded such “concerned from Cannes” statements with his own MIDEM session, in which he said that while his company’s free-to-use PC-based service is pretty damn smart, and as a result the vast majority of his users are currently not paying for the service, the music industry needed to see the current Spotify offer as the first stage of something much bigger, ie the Spotify mobile app, only available to paying subscribers, which is just the first of a number premium services in the pipeline to aid upsell.
PaidContent quote Ek thus: “What you’ve got to realise – we’re really trying to drive people to create a library and use Spotify as the cloud-based service where they have their library. It’s early days for our platform so, for us, the most important thing just now is to drive consumer engagement through the building of that library. Then, when people want to drive that library to their mobile phone or XBox or Sonos, they’re paying for that access”.
As a case in point, the aforementioned mobile play facility launched last year has helped Spotify boost its paying subscriber base to 250,000, according to Ek’s UK-based colleague Paul Brown, also at MIDEM. It’s still very much the minority of Spotify’s overall user base, but it’s a sign the premium user base can grow. While stressing that the ad-sales part of his business was doing better than some doom and gloom types seem to think, Brown added: “The real aim for us is to grow a real strong subscription service as well [as the ad-funded model]. That’s becoming more of what Spotify is about”.
