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.