Ad-funded music battle intensifies

Online music streaming services are strengthening their position in the market to prove they’re a viable platform for advertising, after gaining momentum in user numbers and revenue this year.

Warner Music recording artists Green Day
Warner Music recording artists Green Day

Spotify has boosted its UK team with its first director-level appointments as the music streaming company sets out to show advertisers and agencies it can deliver scale and engagement – coming as Apple prepares to close streaming service Lala ahead of a rumoured iTunes streaming platform.

Last week ad-funded music service We7 said it had its first month where streaming costs were fully covered by ad revenue, while new streaming social service mFlow launched with a major ad campaign last month (nma 15 April 2010).

Also last month, Spotify launched a social media platform in the first significant change to its service since it launched in October 2008.

Spotify has now appointed its first UK country manager, brand directors and senior sales staff to drive its ad sales strategy in the UK. The company wants to increase its brand and agency partnerships and create new ad opportunities after it unveiled major changes, including new social integration with Facebook and a new library tool.

Former head of sales Jon Mitchell has been promoted to UK country manager to drive both the premium and ad-funded services with an expanded team. Mitchell said advertisers were now keen to use services like Spotify, which has amassed more than 3.2m users in the UK, because they can offer scale.

“We’re at the point where we have the scale, so we think more advertisers can use us. The challenge is to get them to realise what’s capable on Spotify, beyond banners and audio ads,” he said.

Ad-funded online music service We7 last week announced it had generated enough revenue in March to cover all of its streaming costs ( 28 April 2010).

CEO Steve Purdham said, “In 2008, no matter how good your proposition was, services like ours only had about 10,000 users. But now you see has about 2-3m users, We7 has 3m and Spotify has 3m, so the momentum of the audience is bigger than most radio stations. That in itself is making brands at the very least explore what’s going on.”

Mitchell wants to increase Spotify’s links with brands and develop new ad opportunities, so has appointed Beth Gordon from MySpace as brand strategy director and Zia George as brand partnerships director, while Ross Adams and Adam Williams have been hired as group heads to manage partnerships with ad agencies.

Ad-funded music services came under scrutiny from the industry earlier this year as record companies questioned whether an ad-funded business model was sustainable.

In February, Warner Music CEO Edgar Bronfman Jr said the label wouldn’t allow its catalogue to appear on services that were purely funded by ads, but would allow its music to appear on those supported by a premium model, such as Spotify and We7 ( 10 February 2010).

Anthony Ackenhoff, founder and CEO of music consultancy Frukt, said although the audiences of ad-funded services are growing, many agencies and brands are still reluctant to invest in them for the long term.

“The challenge now is to convince the media buyers that music streaming is a valid platform,” he said. “The services need to start educating them by selling themselves along with the strong data they have on their users to prove it can work.

Alyssa Tisne, VP of strategic partnerships at 7digital, part-owned by HMV, said, “There’s still industry-wide reluctance to throw out the old business models and drop fixed-price models or embrace any service which is fully supported by ads.”

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