TMV were lucky to catch up with Steve Purham CEO and founding investor of UK streaming music service we7.com. In this interview Steve provides us with some exclusive information in terms of when we7.com expect to potentially be profitable. It’s pretty good news and could possibly herald we7.com as the first profitable on-demand streaming music service in the world.
Can you give TMV an update on any new offerings and news at we7.com?
SP:The two biggest updates is the partnership with Yahoo and the announcement that we managed to pay a fair and reasonable rate for every song listened to in the UK for the first time purely from advertising.
It was recently announced that you had your first month of advertising actually covering all costs associated with royalty payments associated with streaming music from we7. Is this a world-first in terms of streaming services?
SP: Pandora did it first for Internet Radio; we believe that we are the first for Music On-Demand at a fair and reasonable rate for each song.
Obviously the aforementioned is a great milestone, yet profitability, not just covering streaming costs, is critical to the long-term sustainability of advertising funded streaming music services. How long do you think it is before we witness streaming music services, including we7, announcing profitability?
SP: If we can continue the trend we would expect that at a UK level we could be cash generative, and hence profitable, by end of 2010 or first half of 2011 at the latest.
What are the key market conditions you believe have played a significant role in enabling we7.com to meet its royalty payouts from streaming music from advertising?
SP: Focus on making the economics work, great technology, good relationships with the Labels and selling advertising at market rates as well as giving advertisers an outstanding way to interact with their customers.
Do you think brands are coming on board and willing to pay higher cpm rates to be associated with giving music away for free?
SP: Brands are definitely coming on board and the rates vary from high quality integration campaigns to simple radio ads. The music is what the audience wants and the audience is what the brands want.
What are the major roadblocks preventing advertising funded music models becoming sustainable over the medium to long-term?
SP: I suppose fear is the biggest potential roadblock. We are in a transition from old to new and that provides uncertainty – companies, to-date, in the ad funded world have not performed well and as a result they are being discounted as a ‘true opportunity’. I think the more transparent we can be with the music industry the more it will be seen that ad funded can protect the world from piracy and perceived value of music.
Now that Last.fm is pushing its user-base to third-party sites, including we7.com, do you believe it signals on-demand music models are unsustainable in terms of current licensing cost levels?
SP: Absolutely not! Three years ago the Pandora/last.fm models were considered unsustainable, now Pandora is growing to be one of the biggest Music businesses. This is a marathon not a sprint. It is true that On-demand models are very marginal at the moment, but just the fact that we can pay and support reasonable rate is a great confidence builder because only 12 months ago that was impossible now it is possible.
Can you provide TMV’s readers with your opinion on the factors necessary to convert freemium users into premium paying subscribers in terms of streaming services?
SP: First music is not a freemium model. Music has value and if every listen is paid for, then as you grow the costs grow proportionately – so to go from 1m users to 2m users doubles the cost. A freemium model has the situation that as you go from 1m users to 2m users your costs tend towards zero so that converting a small percentage of them to a paid service of some kind creates a business model.
This is a model where users choose not to pay for something that is valuable, so to make them move to subscription there has to be a perceived value in that move e.g. mobile or packaging get a Ticket to the gig for a 12month subscription or convenience. But ad funded and subscription will need to be symbiotic.
And there you have it from Steve Purdham the CEO of we7.com, which, as of last week, was the first on-demand streaming music service to pay all royalty payments from advertising campaigns served within the service.
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