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MySpace Ad-Supported Music: Feasible or Fiasco? |
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(originally posted at Brooding Savage)Â
MySpace is now the latest company trying to distribute free ad-supported music. Good luck to them!
This article is part 1 in a 2-part series on MySpace and the feasibility of Ad-Supported Music Services.
Several companies, including LastFM and Imeem, are attempting to build ad-supported music services. I’m a fan of most of these, especially for the service they provide for independent artists. But lets be clear about one thing… these companies are not offering “free music.” They’re offering free on-demand radio. There’s a big distinction.
SpiralFrog and Qtrax are building a reputation for delivering free, downloaded tracks, with the cost recouped through advertising revenues. I’ve had some previous thoughts on the subject. It would take more than traditional ad revenues to support the cost of music given the price points set by labels.
But the MySpace story is different, and raises two questions. Can MySpace actually provide even a streaming service supported by advertising when great services like Pandora and Live365 have stumbled. And even if MySpace can, who cares?
Part 1: Who Cares?
Does anybody really want on-demand radio? Well, yes and no. There has been some small-scale successes in online radio, but no major revolutions. LastFM and Pandora continue to be niche services that are successful during working hours, while people are at their desks.
But let’s be realistic — music needs to be both portable and collectable. Everyone I have ever known has a music collection. Music is an intrinsic component of each individual’s personality. Streamed tracks can’t fill this basic quality.
A music collection is like an expression of a person’s unique identity. Over the years, it becomes an archive of who we have been throughout our lives. I still remember my first album – A Wizard/A True Star by Todd Rundgren. It was a gift when I was 10, and when I lost it moving between dorms in college, I replaced that long-outdated work with the same album on CD. Why? Because like most people, I consider music to be the historical artifacts of my life.
So let’s not kid ourselves. Being able to stream free songs on-demand via a website is not an innovation. For many people, it’s not even a product.
Part 2: Financing on-demand radio
As you might imagine, the difference in the cost of broadcasting a song on-demand and downloading the same song is striking.
The RIAA recently increased the fee for online broadcasts to $.0019 per performance of a song. Compare this with an estimated $.75 that labels are receiving from iTunes for a download.
Now I know broadcast music licenses are a complicated business, and the fee structures are never as simple as they appear. No doubt News Corp has been negotiating the finer points of their deal directly with labels, and we have no way of knowing what the final number is. But regardless, the big picture is clear… streaming a song is relatively cheap compared to downloading.
Can MySpace recoup 1/5th of a penny for every song streamed on their site? Simple math shows that a CPM of $2 would reap $.0020 per ad. MySpace likely demands a CPM higher than $2, and they can place 5 ads on a page. If a song lasts 5 minutes, the page can be refreshed multiple times, effectively quadrupling the potential revenue. So in short, MySpace definitely has the traffic and the inventory to make the music service profitable. Unfortunately, it’s not so simple.
Part 3: The Problem with Social Networks
MySpace’s overall advertising revenues in the U.S. reached approximately $525 million in 2007. That’s a phenomenal increase from the $190 million earned in 2006. Clearly MySpace is in the best possible position to try an ad-supported service, like music streaming.
But in the same period, MySpace served about 40 Billion monthly pageviews. I’ve seen as many as 5 ads per page, that’s about 2.4 trillion ad impressions for the year. Assuming a current CPM of $2, MySpace should have made $4.8 billion in advertising.
What’s causing the shortfall? Find out tomorrow. I’ll be analyzing MySpace’s revenue problems in the next installment of this article….
Bill Houghton is a 13 year veteran of new media business and product strategy, having developed strategies for AOL Music, Moviefone, AOL Entertainment, and MyStrands.com. His latest efforts focus on media discovery via social networks, and business models to assist independent artists. Read more from Bill at www.BroodingSavage.com.
I think you are spot on with your analysis, though I do think you’ve overstated MySpace’s CPM level. From my online advertising experience, looking at the kind of ads they run and the audience they reach, I’d put their CPM much lower, between $0.25 - $1.00. Of course, that doesn’t help their money woes as they try to launch this new service.
Still, they have a big audience, and if they can do it right, streaming music on MySpace could be quite popular.
Good comment. Actually, if MySpace really earned a $2 CPM they’d have made about $4.8 billion last year, instead of the $575 million. In reality, I think MySpace is getting between $.01 and $.25 CPM. But CPM isn’t MySpace’s biggest problem.
You may have noticed that MySpace has removed ads on many pages because they couldn’t sell the inventory. There may not be enough willing advertisers to pay for the music service at any price — even if MySpace were giving ads away for free.
The question remains,is there enough demand for ads on MySpace to pay for the music service? Check out part 2 of the article at http://www.BroodingSavage.com
Good points, I’ll be checking out that article.
Bill, you may be a little hasty in your comment about Qtrax building a reputation for ad-supported music. As was widely reported, they ain’t got no music, and still don’t, as of this writing. Apparently they were a little hasty with their label agreements. Maybe they should be called “no-Trax.”
The only thing Qtrax is building is a monument to its own humiliation (and a huge debt, of course). It’s kind of unfair to put Spiralfrog into the same category as them, seeing as how they are booming with free, legal, and DOWNLOADABLE content.
People nowadays don’t want to sit on a site and stream music, even if that’s how websites make money. They want downloadable content, which means MySpace’s new idea a very bad one. Trying to cash in on the online music scene, but they are just doing it wrong. If they want to do it right, do it like Spiralfrog.com
QTrax is suffering — and you have to feel some pity for the site. Although the fiasco has revealed a little about their business model. In order to download music, they require the user to view ads, enable web tracking (supposedly to sell data to 3rd parties), and include heavy DRM restrictions such as no burning or transferring the files. In fact, what QTrax was offering was not much different from a streaming service.
july 6 2008 Qtrax is up licensed by the majors and lots of independents its working great I am downloading free and legal music as we speak all you naysayers out there all i can tell you is go to qtrax you will be blown away now, let alone when its fully functional as they are adding tracks and functions daily ,portability coming very soon and fuck ipods watch out for deal with qtrax and google to load up the new google phone with music for free from qtrax