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HomeArchiveThe Streaming Music Business - Is It Sustainable? Part Three

The Streaming Music Business – Is It Sustainable? Part Three

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In this third instalment of TMVs analysis of the sustainability of the music streaming business, we examine the issue from a brand and media agency buying perspective. Key elements for any media agency or brands need to see value in terms of targeting and acquisition uptake for their campaigns associated with ad-funded streaming music services.

First up then, KMPG’s third annual global Consumers and Convergence survey’s conclusion that more than 60% of UK consumers would rather watch adverts in return for free online content than pay for it, should provide reassurance to both advertisers and ad-supported music streaming services alike. On the flip side it does not present good reading for subscription services as only 16% of UK consumers would prefer to pay a premium to avoid advertisements.

As is common knowledge brand owners have generally understood the power of music but struggled when it comes to harnessing it for their brand. According to Jon Mitchell UK sales Director at streaming music service Spotify “The targeting potential of ad-funded online music services is the killer application for advertisers.”

Streaming services are pricing themselves at an “acceptable” level according to Phil Cowlishaw at digital media agency Blue Barracuda. Going further he states “It’s simple logic: if you get a helpful rate to start with, then you’re more likely to go back with other clients for more”.

However, TMV does wonder if these “helpful” rates are in actual fact setting a precedent whereby they will be used as a ballpark for all future media agency spends? These streaming businesses need to ensure that they do not inadvertently threaten their own ad-funded revenue sources, to where it becomes non-viable as a business in terms of the costs associated with streaming music and a massive gap left by unsustainable “helpful” advertising rates.

Justifying these “helpful” rates Oliver Newton an Account Director at digital agency i-level states, “these services are taking a huge leap in the dark at the moment to work out how best to monetize. Advertisers are taking a risk too, which is why pricing is flexible” (NMA Article). Yes, advertisers are taking a risk but all marketing is a risk.

Numerous studies have proven that a brand being associated with the provision of free music leads to an upswing in consumer acquisition and builds exceptional brand loyalty. So why should streaming services have to provide advertisers with knockdown rates? In TMVs view they should not have to.

According to Kevin Murphy, MD at media agency Zed Media; “For brands which have a natural link with music, the potential is clear. But until these sites can compete with the more sophisticated targeting opportunities now being offered by other youth focused or high-interest social sites like MySpace in terms of CPM, music sites will struggle onto the media schedule for brands without an obvious reason to link with music.”

Such a media agency in the UK would traditionally pay MySpace around a £3 CPM. Even though MySpace has the targeting requirements of these agencies they still will not pay a sustainable and realistic rate in TMVs view. Feel free to go back and check out TMVs previous analysis of the breakdown of why such a low CPM is unsustainable not just for streaming services but artist and content owners alike as well.

At this point it is important to examine the issue of scale. Whilst a CPM of £3 might scale well for brands and media buying agencies, it quite simply does not for artists and content owners alike. If content owners have equity shareholdings in the streaming services all well and fine for them. But what about the original creators of music where do they sit in this finely balanced equation? In TMVs views scale has to be a two-way street, otherwise there is no sustainability in the streaming music business.

Going further, is there enough money around from brands and their media agencies to fill all the inventory of each of these established and emerging ad-funded streaming business? According to M-Group Director there “quite simply is not enough brand dollars to sustain all of these services”. This raises a fundamental question: which of these music streaming services will survive the inevitable consolidation of services that will no doubt occur as the market matures?

Drilling down, if there is not enough advertising spend to fill the inventory of many current incumbents and recent industry darlings, how can the market sustain the entrance of Virgin Media, Sky, MSN and others? Will these new entries just ensure more established music streaming brands such as Last.fm, Imeem and Pandora fall by the wayside?

One thing is for sure; streaming music businesses not currently paying sustainable rates to artist and content owners will certainly have to up their game. There is no doubt more choice can be good for the consumer. However, on the other hand if the user experience is poor then the industry runs the risk of those consumers moving back over to illegal file sharing. Going further, what happens to those consumers who end up signing up to the premium subscription offerings, when this inevitable shakedown occurs?

 

 

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