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!).