Advertising, subscriptions and a recession
photo by bungalowbrian
For a few years now ‘ad supported’ have been the big buzz words within the digital music industry and many new companies that are using recorded music have their business model based on the fact that they will become very popular and then ‘sell the attention’ of their users to advertisers. This is not a bad business model and for TV and commercial radio this is very sustainable and has been for many years.
The problem is at the moment that the online advertising market is not as developed as the more traditional markets which essentially means that advertisers do not spend enough money online to actually sustain all the new businesses that are starting up. One other thing to keep in mind is that licensing recorded music is a very expensive business and one has to sell a lot of ads to get a profit out of it.
Now we might have something called ‘recession’. Even though it’s impossible to predict what is going to happen next year it now looks like the online ad market might not be growing as much as hoped, in fact it might be getting smaller as big brands cut back on their marketing spending. If you run an online music service right now it might be very tricky for you to make enough money through advertising next year. This makes me think that a lot of businesses might be looking at subscriptions again and to see if this is a better model for them to be able to pay the rent next month.
What we have to keep in mind is that advertising and subscriptions have been the two big income sources for the media sector for many years and just because the medium is going digital this is not going to change. Often media owners combine the two (I have to pay for my magazine subscription and will see ads in there) and this will continue to happen online.
The ‘freemium’ model (where the service is free but you have to pay for extras) seems to be successful for some companies like Flickr whereby others might be focusing on subscription only services. If you know who your audience is that this can make a lot of sense. Looking at the new Soundcloud service for example you can see that they want to focus on professional music makers only and see them as their customers (even though they have a free service too).
I have the feeling that the (potentially) tough advertising market next year will make companies think twice about who they want as their paying customers: advertisers or their users.
Tags: ad supported, flickr, media, recession, soundcloud, subscriptions
October 29th, 2008 at 10:39 pm
I am surprised that as yet Last.fm has not launched any subscriber “all you can eat” service to help line the pockets of the respective parties. Lala seems to have a new and interesting model which you touched on in a previous post, and one which I personally quite like, though alas I am based outside of the USA.
In reality how much music will people actually pay for at 10 cents per track? Last.fm can probably tell us that most listeners are creatures of habit that don’t spread their musical feathers that far that often.
What do you think?
October 30th, 2008 at 12:16 pm
As you will know, last.fm had a subscription service running for quite a while (something that was used to be called ‘donations’ which was then transformed into ‘subscriptions’) and we are working on an extended subscription service. Some details can be found here: http://www.last.fm/subscribe.
In regards to lala: I find it very difficult to estimate how many people will be willing to pay the 10 cents. The price point seems to be great but what do you get for it? All music services compete with the free (and non-licensed) services and the key is what value can a service bring to the table. Just the music is not enough as this can be found somewhere else for free.
Music services will have to add additional values such as: recommendations, convenience, reliability, social context, etc. If lala does all this then they can be successful.
October 30th, 2008 at 1:24 pm
I look forward to a full subscription service on Last.fm. I think it’s one of the few missing pieces that would turn it into an even better service.
As you say, the 10¢ is not merely for the music, but rather for the convenience. If I can pay that nominal fee for access to the song whenever and wherever, why would i bother spending minutes to trawl the net to find some version or other, and then maybe not.
Given that iTMS has sold over 1 billion tracks, i think the problem is less trying to convince people to spend 10¢, it is having the marketing spend, above and below the line, and the usability to draw the people in and keep them there. That being said, having spent 10 bucks or more, you would have thought that would be enough to keep people returning to listen.
Sure plenty of people like the idea of free, but convenience-at-low-cost drives a damn good bargain.