Claes Loberg is CEO of Guvera, the latest free ad-supported download service to get a licence from Universal. Based out of Australia and the US, Guvera is expected to launch late this year; its model is ambitious but rather innovative, aligning fans’ music tastes with the brand identities of certain advertisers so that brands effectively buy tracks on behalf of music lovers.

We talked to Loberg for a feature in the latest Music Ally Report which looks at the future of legal free music models. Subscribers can read the piece here while non-subscribers can sign up for a free trial. Be sure to read the Q&As we published earlier in the week with We7’s Steve Purdham; Pandora’s Tim Westergren; former Mashboxx and Grokster boss Wayne Rosso; and Rebel Digital’s Robin Kent.

The interview with Claes Loberg of Guvera can be found after the jump.

Q: How did Guvera come to be?

A: I was in London in 2002 and was working with the guys at the Branded Content Marketing Association trying to figure out where advertising moves when it moves out of TV. The purpose was: how do you measure the value of advertising if advertisers get into branded entertainment? The idea of brands owning and creating content doesn’t make sense, because brands can’t associate themselves with the failures of the entertainment industry. Brands can’t afford for stuff not to be a hit.

So I started looking at whether we could reverse the ad model and create something that is channel-based where instead of advertisers selecting what groupings of content to advertise on, could advertisers become the channel and house all of the content that is relevant to their brand?

Q: You’re launching an ad-supported free download service just as the industry is starting to question the free model. What makes Guvera different?

A: From our perspective, the reason why any other models are not working is that there’s a bigger problem than customers not paying for content. The bigger problem is the ad industry itself.

The music industry have been trying to get advertisers to pay for content but the ad model they’re using is based on TV advertising. That works when you run an ad model where you control the stream and advertisers can disrupt that stream. But in an interactive world where you can get past ads, any concept based on disruption or banner ads where you’re distracting people doesn’t work. The 1950s model no longer works – disruption or distraction advertising isn’t the way ahead. The only way you can do it is engagement based advertising.

Q: Ultimately isn’t the problem that there’s not enough money in the ad industry to pay for legal downloads?

A: The ad industry is a 600 billion dollar industry. The lion’s share is being spent on TV because the whole ad world knows what TV is. Deep down they know it’s not working but the question is: where do they put those funds? If you are trying to access digital ad dollars and be another place for advertisers to spend their money – disrupting the stream hoping they’ll be annoyed enough to pay – it doesn’t work.

If you try and create something useful for advertisers, if you create a place where the TV dollars can move across, then you’re looking at taking the TV dollars away and they are by far big enough to pay for the music.

Q: But other services have already told us that it’s difficult to avoid either having to employ a huge sales force or losing out because of discounting around the ad networks…

A: Advertisers want to lump us in to a CPM model or a CPC model because that fits with how they buy space. But our first point is getting across that they’re paying for engagement. It’s not so much that the brand is paying for the downloads, they don’t buy from us saying they’ll pay x per download. They’ll pay x per customer. $3 per customer for a brand means the customer could download one or two tracks and stream 20 or 30 tracks.

We’ve modelled the simplicity of how you build the channels on a Google AdWords model, so that even a small business could build themselves a channel and say they want 25-30 year old people in London up to the value of $3 per customer up to a total of 100 customers.

That creates a truly sustainable element open to many more advertisers. Much as Google is responsible for finding advertisers, they are of course dealing with the bigger ad buyers too but the wider group is the millions of people who as they search Google go on to create their own campaigns. Our guys are dealing with a few hundred media buying companies and each of those have our materials, but the wider concept is that it has the same flexibility for hundreds of thousands of mid level businesses to use as an engagement tool.

Q: Talk us through the Guvera experience – for both customers and brands.

Brands don’t choose the songs in their channel. They choose tags that match the attributes of their brand personality such as angry, happy or whatever. That populates a list of suggested songs. They choose 20 of the suggested songs or pick a selected artist and that creates the brand spine – the songs that best represent their brand. That presents the food for the algorithm to match what songs are similar, so if I’ve chosen AC/DC and you search for Metallica, the algorithm figures they’re similar and puts them on the Jack Daniels channel.

What the consumer then sees is relevant to their own tastes but also a match to what the brand has selected. When you search for a song, Guvera has rules that there must be a minimum number of brands that will pay for that song for you. If you search for a song, once you choose which brand will pay for it, you get taken to that channel. If you try to download more tracks it will pop up and say ‘your quota’s full, click through to look at another channel.’

The most common question we get is ‘why wouldn’t you choose the brand at the top?’ – but when you click the brand all that other content related to the brand fits the brand’s personality. We’re using brands as a tool to find the music.If you don’t know what music you’re looking for, currently you’re relegated to matching tools or searching categories/ subgenres. Realistically people don’t what fits in a subgenre but most of us know what a brand’s sound would be. You could already explain what you’d expect to find in Levi’s, for example.

The beauty of it is the brands, having done mindshare exercises of understanding what music you associate with them, can in turn use the music to develop their brands. This allows us to truly do something useful to get advertisers to spend money in digital.

Q: But doesn’t this make it seem like certain artists are endorsing certain brands?

A: There’s no association with an artist from an endorsement standpoint. We’ve worked with the BMIs and the PRSs to work on what happens when a customer searches on Guvera. Absolute control in the backend lies with the artists. There’s an engine for labels, artists and publishers to put restrictions on and say ‘never can this song be paid for by a tobacco company or a Walmart or whatever they don’t agree with.’

Once you go to the channel there can never be just one artist inside of that channel. There’s a ratio worked out with record labels and rights bodies so that there are different artists and tracks in there. So if you clicked Pepsi you wouldn’t find all Rolling Stones. This is where the value starts to shift with the advertiser.

Q: Even so, surely it’s going to be tough for Guvera if you don’t have key artists in the catalogue…?

A: Take music ringtones. At the very beginning with ringtones they couldn’t get composers and artists to be associated. Then once they realised that the model had changed and where they were getting money from had changed, many more people wanted to offer those ringtones. Of course we’ll miss out on some artists but this may change when they realise that Guvera’s not trying to create a relationship of endorsement – we’re offering a mode where brands offer up credits.

Q: And are these really unprotected MP3s, or is there a catch as there was with Spiralfrog?

A: The tracks are DRM-free downloads. The whole concept is you 100% cannot disrupt or distract or forcefeed ads on them. That whole concept has to be abolished

Q: So what’s next for Guvera?

A: Universal is the first major we’ve publicly announced; the second announcement will be next week, the third one hopefully soon. Our first live beta version will be in Australia on December 15^th then February 1^st in the US.  Then there’s video. We’re creating the ability to monetise all content so we’ve been in conversations with Sony Pictures, HBO and also news bodies and all sorts of content. If you imagine these branded channels they can house all kinds of content.

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Steve Purdham is CEO and founder investor of We7, the web-based ad-supported music streaming service. We talked to him for a feature in the latest Music Ally Report, which subscribers can read here – while non-subscribers can sign up for a free trial. The Q&A is after the jump.

Q: We’re hearing a lot about ad-supported or free services that are looking at ways to retool their model. Is the free ad-supported dream over?

A: If you start at the top level and ask ‘can ad funded streaming models work?’ the answer is yes. I suppose one of the real reasons why a lot of people have failed to deliver is that they’ve gone for scale before sustainability. When you go for scale – especially in the current environment where it’s pretty flat and restricted,  - all you create is a significant loss and liability to the music industry. That’s been the problem with iMeem – 27 million users in 16 months owing labels $32 million. If you take a stop back there is a natural desire to think that scale is the answer to everything. This is not true in the music world where there are multiple licence charges. Even if you might negotiate one of those away to a rev-share with a collection society, the fact is when you go from a million users to ten million users you increase your costs.

Q: Where does the market need to get to in order for free ad-supported music to work?

The equation is simple – you’ve got to pay for the music. What you have to pay for each music track is an issue so over time that will reduce but it still needs to be a reasonable amount so that when you go for trillions of streams times a small amount becomes a large amount.

The other side of the equation is advertising which is very flat at this time. But you need to look at the fundamentals of each business. We know we can get an ad ratio to number of streams of 3.6:1 so if the minimum stream was half a penny then at £2 CPM you can make the model work and pay for the music. Then at scale you can cover your operating costs.

When you can generate $40-$50 million then people become more relaxed because it’s no longer about a 0.5 p or 0.1p per stream, it’s multiple billions of revenue. That’s why the pricing models have been kept high because no-one has been able to show what happens if you allow music  to be paid for on a revenue share.

Q: What is your view on the freemium model?

A: Music in the current world cannot be a freemium model. It assumes the more you get, the cost of delivery goes to zero, so by having a large market if you get 1% or half a percent or 3% of those people getting to the paid part then that covers the cost of your free part. Music can’t do that – in the UK for every song there is a .085 p fixed cost just for the collection society. 100 million songs means 100 million times .085p plus 100 million times rev to labels and bandwidth for 100 million tracks.

Using ad funded to get your big subscription rates is completely wrong. Ad-funded or any free component has to be capable of being revenue generating of their own accord and covering their own costs. The percentage of people who subscribe will never generate enough revenue. If you look at Sky Songs is there with subscription, you’ve got Napster with £5 for, Spotify with theirs, We7 with their subscription. It’s going to become pretty crowded quickly.  So to have the idea that if you can find 100 million users and give them free music that the one million that pay for it will pay for that cost base… it’s an incredible dream that will never happen.

Q: So how is We7 succeeding where others are failing?

A: We7 haven’t left the UK yet and we haven’t gone after a massive amount of PR. We have enough users – 2.5 million monthly uniques; 1.3 million come to We7 and are heavily engaged – and that is all we need at the moment until we get the advertising ramped up to get the metrics right.

Q: This being the case, when will We7 start fulfiling its financial ambitions?

A: We believe there are enough indications that will allow that to happen towards the end of 2010…or if we don’t believe we can get there we’ll stop. But we’re confident with the talks we’re having and the support they’re giving us and the type of reaction we’re getting that there’s enough momentum to make it happen. The real trick is not about getting the number of users – that’s easy, anyone can give music away for free – the trick is making money so you can pay for it at a good rate and make money out of it.

Q: How supportive have the record companies been?

A: Pandora has millions of legal users that the music industry didn’t have before. We have 2.5 mil monthly users – these people haven’t just become music listeners from scratch, they’ve come from environments where the music industry didn’t get any money out of them before. But if you approached the music industry two years ago with the promise of great treasure if you gave away the golden egg that was a leap of faith. To be fair to the labels they’ve been supportive despite the fact it’s not clear how it’s going to proceed in future. If we believe we can’t get the economics to add up we would stop.

Q: Anecdotally-speaking, when using Spotify it seems that the quality of the advertising is fairly low – isn’t it hard to make money when the advertisers aren’t paying much?

It’s not low quality advertising, it’s the fact that We7 and Spotify have gone from zero adverts to a large number of ads in a short space of time. Most digital advert inventory is being bought from networks like MSN where the discounts are so for someone like us to insert themselves into the advertising process in six months is difficult – it was only July in our case we went through the million users mark which is the kind of number advertisers want.

Spotify are being disingenuous on you on as a customer because they’re allowing the experience to be better than it can ever be when they go to an economic situation. Slowly as they’re trying to get to a proposition your experience will increasingly get worse until you think ‘why am I listening to all these ads’ – again because We7 has focused on sustainability rather than more and more users, if you used We7 in November you’d have the same ad experience that you got 12 months ago. You’ll get an audio ad on the start of every song and you’ll get a visual ad on every thing you look at but the environment will never get any worse and that’s a massive difference. We get 3.6 ad opportunities on every song and that’s been consistent for six months.

Q: How important is mobile to We7?.

Any future music system or service has to be able to give people the choice of listening in either the computer or mobile phone or even in places like their TV, games console or car radio. So it’s part of our technology roadmap. The economics might change because at the moment the music industry rightly looks as mobile as a premium environment…so it will be subscription-based for two or three years until the economics change and everyone has smartphones and then it becomes a commodity. We’ve developed a We7 iPhone app so I can listen to my playlists on my iPhone but we’ve chosen not to launch it until we launch our subscription service.

Q: But looking at Spotify and Pandora, isn’t it the case that the iPhone apps have strongly boosted their health?

A: Will a subscription service on an iPhone be taken up by a large group of people in the UK? Yes. Otherwise we wouldn’t have developed one. It’s a natural requirement on a high end phone to have music, to walk out of home and all the playlists you really love. But you’ve got to be careful: when we say we’ve got x million users, you can look at Hitwise because we’re a web service and verify our stats. With Spotify you can’t, you only get what you’re told. I’ve heard they’ve had hundreds of thousands take up the iPhone apps.

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Pandora Chief Strategy Officer Tim Westergren founded interactive radio service Pandora in 2000. The innovative service draws upon music recommendations based upon human experience rather than computer algorithms alone; its iPhone app has brought new success in the US market, although Pandora is no longer available to UK residents.

We interviewed Westergren for a feature on the future of free licensed digital music as part of the latest Music Ally Report, which subscribers can read here – while non-subscribers cansign up for a free trial. Find the Q&A after the jump.

Q: Your battles over web radio rates have been well documented. What’s Pandora’s position now?

A: We have enormous licensing liabilities and Pandora is hoping to do a profitable Q4 but well over half of the gross revenue goes to licensing – that’s on the statutory licence. On the one hand we’re huge fans of statutory licences because they are what enable us to exist and they provide a functional way to acquire huge catalogue from not just the majors but indies – of our 80,000 artists, 70% are independent – we embrace centralised licensing but the challenge is that the rates that have been set for us are really high.

Q: How did you feel about closing Pandora to UK customers?

It drives me crazy. We’ve been trying to push in the UK to get a statutory licence, some form of centralised licence and one that’s affordable.

Q: Pandora’s been going nearly a decade, so you must be ahead of the curve in terms of figuring out how to make money from advertising on a music service. What’s the secret?

Half of our company’s staff do nothing but sell, develop and traffic advertising and you have to be creative to figure out how to monetise web radio. We have a mixture of ads: visual, video and audio ads. It’s a moving target. We believe there’s a happy ending to all of this or we’d be on a fool’s errand.

But the big challenge in the ad space is that to be attractive to advertisers you have to have scale and it’s difficult to go from zero to scale because your ad capability can’t keep up with your growth. It’s a Catch 22: Toyota isn’t interested until you have reach – Pandora has reached that scale but we burned through an awful lot of money to get here. Getting investors with the stomach to take on that risk is difficult.

We’ve been at this four years now and we’re fighting to get into the black. It’s not for the faint of heart – and that’s for the non on demand model. You need a raw number to be considered a reach play for an advertiser but…you’re running faster and faster and your bill is growing faster and faster. If you hit the wall you’re going to hit at 100 miles an hour.

Ultimately it’s about the efficiency of monetisation. We’re breaking new ground here. Ad-supported music is a brand new industry and a new economic model.

Q: What about the so-called freemium model?

A: I think it’s important to have freemium with a subscription offering as a matter of service to our users but we don’t view it as an important cornerstone of the business. Nothing should lead anyone to believe that subscription in the music space on its own is a viable model.

Q: You have millions of iPhone listeners, so is mobile the future for Pandora?

A: Mobile is a fantastic modality for this because it gets you in all those places internet radio didn’t use to be – the gym, the living room, the car. Ist’s opening up the big new swathe of listening but it doesn’t solve the ad problem. It’s not the magic bullet: indeed in many ways it poses new challenges because the screens are smaller so there are fewer opportunities for advertising.

Q: How did you decide to distribute the app for free rather than as a paid app or one that requires a subscription like Spotify?

A: The Pandora mobile app being free connects to the issue of free as a service. If you look at the iTunes App Store and compare free apps versus paid apps, you’re looking orders of magnitude lower numbers for the paid apps.

Q: And what’s your opinion of Spotify and the new generation of free services?

A: We operate in a different part of the ecosystem from Spotify because we’re not on demand. So it sets us in a very different licensing situation, both in the raw cost of licensing plus the administrative and logistical burdens of direct licensing. But I’m rooting for them – I’d love nothing more than for someone to figure out an ad supported on demand service because that’s the motherlode. You’re figuring out the biggest challenge the industry faces, competing with free. Companies are coming along with different spins, different approaches and I’m rooting for them all.

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With years of experience as a music industry publicist, Wayne Rosso came to the digital music world’s attention as boss of unlicensed filesharing service Grokster. Then he attempted to pioneer a legal p2p model with Mashboxx, before more recently becoming associated with a failed attempt to buy The Pirate Bay and legitimise it.

We talked to Rosso for a feature in the latest Music Ally Report, which subscribers can read here – while non-subscribers cansign up for a free trial. Find the Q&A after the jump.

Q: Why hasn’t anyone cracked the ad-supported free model yet?

A: It boils down to the labels and their fees for streaming. Clearly it’s not going to happen if they don’t want it to happen and, based on their fees, they don’t want it to happen.

We cut a deal at a penny per play and I think we were on the right track five years ago. Even then the record labels wanted us to put in voiceovers to make copying the tracks less enticing but we were finally able to talk them out of it. Record companies have never cared about user experience, they care about money and that’s fine.

If you’re an entrepreneur building a service you’ve got to think about user experience. For Spotify it’s just not profitable to launch a free service in the US and the reason is the rates. There’s no way in this market at this time and for the foreseeable future that it could be supported advertising wise. I’m not an ad agency guy, I’m just a simple bigmouth but the reality is tough.

Q: Surely this comes down to the fact that fans want free streaming and labels have to find a way to make the model economically viable?

A: If you’d have asked me five or six months ago or more if downloading is necessary now that you can stream on demand I’d say that downloading no longer makes sense. However in the light of the research that’s come out on pirates spending more money on CDs, that tells me that people still want to own.

You may argue well Spotify has an Android or iPhone app but there are many more iPods out there that don’t have access to streaming. Let’s face it you’re not going to stream in your car, you can’t stream on the tube…you can’t stream in your gym unless they have an open wi-fi connection.

Streaming is great but people want to own so in my view streaming is just like radio. You use it to promote your product. They don’t look at radio as a profit centre. It’s still a sampling service and the whole idea is to sell the file.

Q: But isn’t it dangerous to set up a situation in which you give music away and hope to make up the loss somewhere else…?

A: There’s a fear of cannibalisation. The labels will say ‘our best customers spend $80-$100 a year on CDs and we don’t want to lose that’ so in their minds a streaming service will cut into profits.

But I don’t look at streaming as giving music away. These companies that say they’re going to give free downloads? Bulls**t. Based on what I’ve seen – and I’m sure they have something worthwhile – the only way you’re going to get free downloads is if you pay for the downloads upfront and then the record company doesn’t give a sh*t what you do with it. You could stand in Trafalgar Square and give it out for all they care.

Q: How would you tackle the gap between free and paid, then?

A: Record labels should look on these streaming services as sampling services. What they should look at is what they can do to upsell. Whether it be a Spotify or a Rhapsody or Napster it’s all in the upsell and that’s the difficult part..

A free streaming service is a promotional tool to sell a more robust product. The only reason to put advertising in it is to cover the cost of the content and you’re still going to lose money. If the ultimate goal is to grow the market you’ve got to come out and be creative.

One of the ways you can do that is quality, another is added value – and you’ve got to throw open the door to the candy store. Labels have to shift from a unit sales frame in mind to a per user mentality. They want to get 40-60 dollars a year from a user when there’s only 40 or 60 cents that’s there. You have to struggle to pay just part of the content with free.

Q: How do you feel about the piracy situation now?

A: It’s interesting that even though the p2p the piracy market seems to have levelled out it’s not experiencing the growth by leaps and bounds it did. Now the growth is in the legal sector so we’ve realised that people like the all-you-can-eat experience and DRM doesn’t work. If you give them what they want they’ll pay for it. It’s duplicating the p2p environment and you’re just selling them insurance. You want them to feel like they’re pirating the music, they can grab as much as they like, but paying the fee is like an insurance premium.

The piracy issue won’t go away. It’s here with us. You’ve got to compete with free.

Q: What do you make of Guvera, the latest free ad-supported contender?

A: It’s a very bad advertising environment right now and advertisers are very picky about advertising with music and associating with the right kind of music. You just can’t go around and start selling advertising that’s directly attached. Let’s imagine one of these sites sells something to Chevrolet and wraps all their Sting tracks in Chevrolet branding. Sting may have a deal with Jaguar so you can’t have another brand in a sense own that content. I don’t know how you can go from artist to artist trying to get permission for this stuff.

Q: Do you think Spotify could become as big a hit in the US as it is in the UK?

A: Will Spotify work in the US? I don’t know. The labels care less about the UK and Europe than they do about the US. None of us has a crystal ball and these people at Spotify aren’t stupid so I’m not going to say it doesn’t work. But the truth is that it’s difficult for anyone to try and crack this space no matter how big you are. Case in point Amazon – they barely make a dent in iTunes and they have just as much money – it’s hard no matter what.

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Previously chairman and CEO of advertising giant Universal McCann, then CEO of Spiralfrog, now founder of Rebel Digital, Robin Kent understands the economics of ad-supported media from both sides of the desk. We talked to him for a feature in the latest Music Ally Report, which subscribers can read here – while non-subscribers can sign up for a free trial.

However, we’re going to be breaking out Q&As from the feature throughout this week, for our ‘Can Music Be Free?’ focus. Starting with Robin, who we asked about everything from Spotify to major labels. Find the Q&A after the jump.

Q: Is ad-supported music dead?

A: I think the overall picture is that it’s not really been tested yet. First. the internet advertising market has not gone in the direction that people have predicted. Digital might have overtaken TV ad spend in the UK but it’s a long way off from doing that in the US – perhaps a decade away. Everyone was predicting that by now the US would be getting to $40 billion, not $25 billion. So there has to be a paradigm shift in the type of advertising being used. Branded advertising has to make a major breakthrough. Until then it will be difficult for any site to attract big advertising at big prices.

Q: Why is there enough ad money to support some kinds of sites but not music services?

A: The problem with advertising is that the majority of the money goes to search – in the US 70% of ad dollars go to the top 10 sites - Google, MSN, AOL etc – and something like the top 89% of the ad dollar 25 billion goes to the top 50. So for a startup site to be able to deliver significant ad dollars is impossible regardless of what types of models.

Because advertising is done by computers these days, if you can’t sustain a site on network advertising things will be tricky. The networks are buying everything at the lowest possible rates. A good CPM (cost per thousand) would be 70 cents in the US. If you have a website with a lot of ad space you’re pretty much filling your site with network ads and you’re in the sub dollar range – if you’re a big site with a lot of impressions you’re using a lot of Google AdSense dollars coming in at 4 or 5 cents then your average CPM drops below 50 cents. Think about that on a 99 cent song and you see the problem. If you have a model that works in that environment you have an opportunity.

Q: If so few of these sites are making money, what is their business strategy?

A: Everybody who has entered this space so far today has seems to have an ambition to be bought by Google quite quickly. Maybe that’s not the approach because it leads to accepting unacceptable deals from labels and putting out a variation of a service that might not be ideal. Take as an example Last.fm being bought by CBS – Last.fm doesn’t get mentioned in the US any more. For these services it’s about how quickly can we build something and how quickly can we exit – it was the downfall of Ruckus, MySpace and Imeem. MySpace at least has the power of Murdoch behind it but it can’t compete against Facebook so it’s rebuilding itself as a music site.

Q: Does the music industry have a responsibility to help make free, legal music work?

A: The music industry demands a lot from these startups, but ultimately it’s their content and because no-one knows where these services are going to end up, of course they’re going to say ‘if I’m going to go along with this I’d like failsafes here, I want a big chunk of your advertising, money upfront and I’d like a penny a play.”

But that coupled with the ad environment means in my opinion a totally free model is unsustainable. Can it be sustainable in the future? If you look at the past what happened to Spiralfrog, it wasn’t prepared to pay a penny per play, it was only prepared to do the ad share. Universal and EMI were up for that but not Sony and Warner…and if there isn’t the catalogue and the audience you run out of your investors’ money.

Although there may be investments by labels in these companies – they did the same with MySpace Music and it doesn’t mean they’re going to help. The labels’ point is: you guys want our content, you need to give us as many assurances as possible, of course we’ll take equity, why wouldn’t they. But that doesn’t mean they’re loving partners – in theory if that were the case they’d rush to get Spotify launched in the US.

Q: What is your opinion on the new generation of free licensed music services?

A: Everybody has to be commended for trying.

I felt that was Imeem was a poor user experience, most users were in Asia and they weren’t monetising them in Asia. When they ran out of investor money it was over. iMeem has now given up and gone to MySpace.

The Spotify guys are really good, they have a vision, it’s just that they’re going to have trouble implementing it. Between the fickle consumer and the struggling labels there are a lot of moving parts. What I’m now hearing about Spotify is that users love it and there’s not much advertising, so why not have your music for free. But their biggest issue is that they’re not going to prove that they can deliver revenue.

As a consumer I like Spotify – it has a great interface, it’s easy to find what you want, the music plays well. The problem I found is that when the radio ads appear they are incredibly annoying. They come between the songs but there’s not enough of them to pay what the record labels want. Once Spotify sell more radio ads it’s going to drive the consumer away. Maybe it drives them to a pay model but there’s no evidence from Rhapsody or Napster that there really is that much interest in the subscription model as it exists today.

I’m still involved in Qtrax and they’ve had a lot of trouble but they’re in Asia finalising funding and they have a deal with Baidu whose music traffic can get forwarded to Qtrax in China thereby legitimising them which is a good sign for Qtrax in Asia. Also the Qtrax model doesn’t rely on advertising in its entirety – it can generate advertising so it falls into the category of freemium.

Grooveshark is basically a bunch of young guys from Florida – they have a lot of very interesting ideas on how they’re going to move forward – we have to move from the completely free model to the freemium model. There have to be other ways to generate money aside from advertising. The ad dollars may be there in the future but the market hasn’t matured enough to know that. When the market knows you’re an ad-supported site they’re going to screw you.

Q: What about Guvera, the new free service whose deal with Universal announced last week?

A: The guy’s nuts if he thinks that ad model is going to succeed – MySpace must already be out selling that model but there’s no way you can survive on that. Not enough premium advertisers will jump out and build a channel. You can’t control the quantity that come and if you’re delivering a CPM at 70 cents but delivering customers a 99 cent MP3 you’re out of business. They’ve only raised eight or nine million dollars but when you deal with the labels, they’ll eat that up in a short period of time.

Q: How long will it be before one of these free services manages to make a success of the model?

A: If we fast forward five years when internet advertising is bigger, advertisers are being more creative, something could pop up and could surprise everyone. By then the music industry situation won’t have got any better: they can’t stop piracy, so they’ll be more open…Some of the services today have got to try and survive in the hope that they will prosper in the years to come. Labels have to be patient – if you they’re expecting a quick return it’s not going to happen because it isn’t there.

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Interactive radio service Pandora has revealed as part of an article in GigaOm that snowballing mobile uptake has driven the brand’s impressive growth of late. Pandora has been installed on 13 million smartphones to date including iPhone, Blackberry, Palm and Android. 9 million of those users didn’t previously have computer-based Pandora accounts, meaning that 24% of Pandora’s users came from mobile. A quarter of the music played on Pandora goes to mobile and 25% of the purchases via iTunes or Amazon happen through mobile.

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Just under two years since Sony closed its failed digital music store Connect, BusinessWeek is reporting that Sony plans to launch a service likely to “bear some similarities” to iTunes. Currently bearing the tentative and rather functional name of Sony Online Service (why can’t these companies use exciting codenames like Project D.O.O.M?), the internet media store is expected to piggyback on Sony’s Playstation Network (PSN). The PSN boasts 33 million users to whom it sells enough downloadable games, TV shows and movies to bring in an expected USD $500 million this year.

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An SEC filing made by RealNetworks states that MTV and RealNetworks are in talks about restructuring their joint venture participation in the music service Rhapsody, “to enable Rhapsody to operate more independently of either party.” The statement suggests that the pair might seek either a new investor or a buyer for Rhapsody. While services like Spotify get more press coverage and of course iTunes remains the giant of digital music, Rhapsody – launched in 2001 – is the most comprehensive music service from the point of view of editorial and categorisation. It has 750,000 subscribers paying between $12.99 and $14.99 per month but many of these are music fans using the service a lot – and therefore costing Rhapsody money. If Apple was to introduce a subscription service it would wipe out much of Rhapsody’s remaining appeal, whcih is why finding a new owner for it could make sense.

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EMI has become the first major label group to make concerts and music videos available on US licensed video service Hulu. The deal will kick off by featuring the entire repertoire of Norah Jones music videos including exclusive content from her new album The Fall. Videos from Virgin, Capital and Blue Note among other EMI labels will be available on Hulu, the streaming video site set up by US studios NBC, Fox and ABC.

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The biggest entertainment launch of all time isn’t a Michael Jackson album, it’s not Harry Potter, it’s bloodthirsty videogame Call of Duty: Modern Warfare 2. This week, according to the games maker Activision, Modern Warfare 2 has garnered USD $550 million in five days, beating all first and five day entertainment box office, book and game records. Activision CEO Bobby Kotick says that “millions of consumers have chosen to play Modern Warfare 2…rather than engage in other forms of media.” Previously Grand Theft Auto IV was the biggest grossing game in its first five days, making USD $500 million; Harry Potter and the Half Blood Prince made USD $394 million during its launch week. It should be remembered, of course, that a game like Modern Warfare 2 can cost GBP £44.99 to buy whereas other entertainment products like books, CDs and movie tickets rarely cost more than £15 tops.

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