UK Digital Music Study

The firm Entertainment Media Research just published the Digital Music Survey 2007. Despite the fact that this is a survey conducted in the U.K., it is required reading for readers of this blog and those involved with digital music.

The survey has a focus on social networking and its strong connection to digital music. For example, 65% of Bebo users have embedded music into their profile. I think there is a great possibility for offering ad-supported downloads on social networking sites (like the music on my page? Download it for free.).

Another statistic: 51% of those who put music on their myspace page say they do it because it tells others something about their personality. The takeaway is that the music people like and play - on their mp3 player for example - is rich psychographic data. Playing ads based on the music played should allow ad targeting to personality attributes.

The technology to do this is available right now. Can this be done by any other medium besides advertising supported download music?

A few other observations from the study:

1. Reasons given for not purchasing legal downloads: The number one reason (53%) is preference for CDs. The number two reason (30%) is that they are too expensive. Just another data point in the overwhelming evidence that people want their music free.
2. Illegal downloading increased from 36% last year to 43%. The number one reason (91%) given for illegal downloading is because the music is free. See comment above.
3. 77% own MP3 players, up from 57% last year (Among 13-17 year-olds ownership is 91%). Is there any other portable electronic device with such widespread penetration that doesn't carry ads?

Cellphones Speak to the Ear, Not the Eye

Last week Adage.com put a good article up (requires registration and all readers of this blog should register to Adage.com) about branding on portable devices.

The basic premise of the article is that portable devices are ubiquitous and play a central role in the lives of consumers. The article, written by Allen Adamson, managing director of the New York office of branding consultancy Landor Associates, identifies what he believes are the key attributes for branding on portable devices:

1. It's simpler if your brand is rooted in a simple idea
2. Text rules
3. Interactivity is key
4. It's (very) personal

I agree with points 1, 3 and 4, which you pretty much can't disagree with.

Point 3 is not wrong so much as it is ignorant. Clearly, the author has the cellphone in mind with all of these points, especially 3.

I say this point is based on ignorance because the author must not be aware of the potential audio ad formats for cellphones. The best audio advertising format for cellphones is audio ads between tracks of downloaded music played on cellphones.

Remember the cellphone is fundamentally a voice, or audio medium. It is not a text or video medium. The human sense that the cellphone speaks to (pun intended) is the ear, not the eye.

The Survey Shows

A couple of weeks ago I put up the post entitled When a Picture is Worth a Billion Dollars, which discussed the Bridge Ratings study of young people's TSL on MP3 Players. I pointed out that TSL is about 17% of total media time and that recorded music is the only media with significant use by young people that does not carry advertising.

A couple of studies have just been released that confirm, and even broaden, these findings.

First, another study from Bridge. This one focuses on tween (8-12) media use. Teens are rapidly dropping out of radio as the chart below shows.

The researchers found that tweens listen to a lot more radio than teens and so conclude that radio should be paying more attention them. See the chart below.

I look at this chart and conclude that tweens are spending a lot of time listening to recorded music and are another ideal demographic target for advertising supported music.

The second study was done by Microsoft and MTV. This was a big international study described in the release as: "...the largest-ever global study undertaken by MTV and Nickelodeon, in association with Microsoft Digital Advertising Solutions, into how kids and young people interact with digital technology."

The study surveyed 18.000 kids in 16 countries. What do kids around the world enjoy doing most? You guessed it, listening to music:

At the top of the list of 14- 24s favorite pastimes is listening to music (70%), followed by watching TV or hanging out with friends, both of which polled got 65%. Next came watching DVDs (60%), relaxing (60%), going to cinema (59%),
spending time online (56%), spending time with girl or boyfriend (55%), eating
(53%) and hanging out at home (49%).

As Richard Dawson used to say; the survey shows - that the potential market, and inventory, for advertising supported music is huge.

Covermount Call Controversy

At this point it may not be news to many readers that the Tuesday column of LA Times writer Patrick Goldstein was killed because it suggested that the Times follow the lead of the Mail, which distributed Prince's CD, and give away music CDs with the paper (called covermounts).

The LAObserved blog summarizes the situation like this:

The bug at the bottom of the Calendar front in today's Los Angeles Times says
columnist Patrick Goldstein is on assignment. Not true. His The
Big Picture column for Tuesday was killed, apparently by associate editor
John Montorio. Goldstein's offense was to propose that the Times follow the lead
of the U.K.'s Mail on Sunday (which distributed 2.9 million free Prince CDs) and
partner with older artists to give away music in the paper. He argued it could
help make the Times website a destination for fans and reduce the need for front
page ads

The text of the killed column is reprinted in the LAObserved post.

Well, the cat is out of the bag and I have no doubt that we will soon see covermounts in the United States. It makes too much economic sense not to happen. So it won't happen with the LA Times, maybe the NY Post?

What is Art?

On Sunday the L.A. Times published the article; Bands and brands going hand in hand. The article reviews the growing trend of licensing existing music for ads rather than commissioning new music expressly for the ad.

For examples of this trend check out Adtunes.com. It is a website devoted to music licensed for TV commercials.

Is this advertising supported music? I think it is. I have been restricting my definition to recorded or downloaded music but I think I need to expand it to include licensing for commercials, and deals like those of Fergie, Prince and Plies.

Back to the Times article. One of the things that struck me is the holier-than-thou negative attitude towards advertising expressed by some artists like Tom Waits.

To people like that I quote Frank Zappa: "Art is making something out of nothing and selling it."

A Modest Proposal for HD Radio

I came across a new blog yesterday called Inside Music Media written by Jerry Del Colliano, who describes himself as: Professor of Music Industry at USC, Former TV and Radio Broadcaster, Founder of Inside Radio.

I like the blog and it is worth checking out. I want to read more posts before I add it to my blogroll.

Jerry put up a post on Friday about HD radio. The gist of the post is that HD radio is dead-on-arrival; that young people won't buy or listen to an HD radio, that it is just a dumping ground for leftover programming, and finally, that the bandwidth is better used for non-programming data applications.

I agree. It will come as no surprise that one of the non-programming applications for HD radio that I believe radio companies should be looking at is advertising supported recorded music.

I can imagine a device like the Pioneer Inno (records satellite radio broadcasts) for HD radio that saves selected broadcast tracks.

Ads could also be broadcast on HD radio and saved on the device. With on-device dynamic ad insertion technology (see Lirix), different ads are played at different times between tracks of the saved music.

This advertising supported music application leverages the heritage and investments of terrestrial radio and would afford it a unique position in the new music and advertising businesses.

The Times is a Great Textbook

Yesterday, and again today, The New York Times published a great article on the music business. Both are instructive for us.

Yesterday's article; The Once and Future Prince, describes how Prince has been able to maintain financial success even as the music business has tanked. Read the article but here are some quotes:

• "Prince’s priorities are obvious. The main one is getting his music to an audience, whether it’s purchased or not. “Prince’s only aim is to get music direct to those that want to hear it,” his spokesman said when announcing that The Mail would include the CD...Prince is confident that his listeners will support him, if not through CD sales then at shows or through other deals."
• "How much he makes from his various efforts is a closely guarded secret. But he’s not dependent on royalties trickling in from retail album sales after being filtered through major-label accounting procedures. Instead someone — a sponsor, a newspaper, a promoter — pays him upfront, making disc sales less important. "

Prince has recognized that the value of recorded music lies in the time spent listening to it, not in the sale of it. Certainly, as an elite artist it is easier for Prince to obtain corporate deals than 99.9% of all other artists trying to make it, but these odds are really no worse than the odds of getting a major label deal.

Today's article; Oops!...They Did it Again, describes the revival of the Zomba Label Group. The company has a new group of successful artists such as T-Pain, but has been able to remain profitable as CD sales tanked, unlike almost every other recorded music company.

A key to their success has been keeping costs low:

• "With the right songs, he added, the label can generate a profit even without a gold album. When the rap newcomer Huey released his first album last month, for example, it sold fewer than 29,000 copies the first week. But Huey’s hit single, “Pop, Lock & Drop It,” had already turned into a radio hit, fueling sales of more than two million downloads and ring tones, the latter typically costing as much as $2.50 each. By keeping costs low, the label was already in the black when the album reached shops, Zomba executives said."

In any industry the low-cost producer of substitutable goods will always win (whether recorded music is substitutable is open to debate but I would argue that it is, sicne listeners have virtually unlimited choice in what to spend their time listening to). It seems like the recorded music business is just beginning to learn this fundamental principle of business.

The lessons that these articles describe are important elements of the development of the recorded music business as it becomes a classic medium - like radio, TV and the Internet - one that is large and supported by advertising.

Sequential Advertising: Blockbuster New Ad Format

Mediaweek reports that Heavy.com is introducing a new ad format that they call "sequential advertising". The article describes sequential advertising thusly: "...a new offering that will provide advertisers with the ability to run a series of spots featuring a continuous narrative during the course of a video program or content block...".

I think sequential advertising is a great ad format made possible only by new digital media. A.L. at contentinople points out that there is no guarantee, perhaps not even a likelihood given the bite size video consumption habits on the Internet, that people will watch enough videos to get the sequence of ads.

Where sequential advertising works great is ad-supported downloaded music. Imagine a person is listening to an album or playlist on their MP3 player. At each ad break a series of sequential ads are played, the whole providing much more of a story than a 30-second TV spot or 60-second radio spot.

I have said before that I try not to promote my company on this blog, but at Lirix we have developed the very application I describe above. I believe the rates for verified sequential advertising on downloaded music will be huge, and that advertisers will be standing in line to pay them.

Prince For More Than a Day

The Daily Telegraph (rival of the Mail) published an excellent analysis of the Prince Planet Earth CD giveaway, entitled How a 'free' album makes millions...

A couple of points that made an impression on me:

1. In 1984 Purple Rain sold 24 million copies worldwide. Last year Prince sold 80,000 copies in the UK of the new release 3121. 3 million copies of Planet Earth were distributed Sunday.
2. This quote: "But everybody knows you can't really get something for nothing. This is an advertising-led model of music distribution, paid for exactly the same way we pay for commercial TV - by exposure to messages from sponsors."

Yep, and nothing wrong with that.

Millennials Want Their Music Free

The investment firm William Blair & Company released a report last week on the media consumption habits of the "Millennial" generation. Millennials, defined as those born in the 1980s and 1990s, is estimated to include between 75 million and 82 million people in the United States - about one-quarter of the population.

For us the most relevant conclusion in the report is: "...for the Millennial generation, digital content is expected to be free (ad-supported), and efforts to convert this group to paid “premium” content will be difficult. In addition, college students do not buy the majority of the music they listen to, with 52% of respondents indicating they had paid for less than 25% of their music collection..."

Look at this conclusion in light of the TSL data I posted last week. The case for advertising supported music only gets stronger.

Prince Promotion Talk of Planet Earth

On Sunday three million copies of the new Prince CD Planet Earth were packaged, and distributed for free, with the Daily Mail newspaper in England.

This is another variant of advertising supported music and comes quick on the heels of the Plies/Sprint promotion, the Fergalicious Fergies/Candies hook-up and the Warner/imeem deal.

The BBC reports that Prince earned about 250,000 pounds for this promotion. Better than nothing, but a lot less than he could have realized from other ad-support applications. Still, I think the primary motivation for the deal was to drum up ticket sales for his upcoming concert tour.

Experiments in advertising supported music continue at a rapid pace and the logic is rooted in the data discussed in yesterday's post.

Microsoft Profiles Ad-Supported Music Company

I am careful not to use this blog as a promotional vehicle for my company; Lirix, Inc. I want the blog to be informative about advertising supported music in general. So I am glad that I can point your attention to something that is both promotional and informative about the industry.

At Lirix we have been working with Anne-Marie Roussel of Microsoft's Emerging Business Team. Microsoft just published a Software as a Service (SaaS) Success Story featuring Lirix.

We're pretty proud of this. It is worth checking out.

When a Picture is Worth a Billion Dollars

As I wrote in a post last Thursday, in the past couple of weeks we have witnessed some significant deals in the ad-supported music space. Thus, I think it is appropriate now to discuss the graphic below, which depicts the essence of the case for advertising supported music:


This graphic is from a study by Bridge Ratings published last month on media time for 14-27 year-olds. Compare the data for MP3 Players to the other data on the chart. You should draw your own conclusions, but here are mine:

1. MP3 Players are on par with the major media - Radio, Internet and TV - for young people's media time.


2. Of these major media only Cell Phone use and MP3 Player use show consistent year over year increases.


3. MP3 Players are the only media with such a significant share of media time without any advertising.


4. The Internet will be a $20 billion ad market this year, as will Radio. Total advertising on TV is worth about $70 billion. The Cellphone ad market is just starting and is projected to grow to about $5 billion in a few years. Based on these comparables, it is not unreasonable to project eventual advertising supported music revenues in excess of one billion dollars.

A picture is worth a thousand words or, in this case, a billion dollars.

imeem Deal Moves the Industry Forward

This is pretty big news: Warner has dropped its lawsuit against imeem and licensed its entire catalog to the advertising supported music service. Warner will share ad revenues.

The imeem service is streaming music only and the ads are visual so, as I have written before, it will not be a particularly effective advertising vehicle.

Still it is a significant development for advertising supported music. Consider this in light of the Plies/Sprint deal, and the Fergies/Candies deal and the last few weeks represent a whirlwind of substantial progress for our nascent industry.

Album Shmalbum

Jupiter Research analyst Mark Mulligan published a post on his blog yesterday entitled: Whatever Happened to the Digital Album. Here is an excerpt from the post:

However the iTunes dominated distribution model has created a business
model which is simply not in the interests of the record labels. A la carte
purchasing is heavily skewed towards single tracks. Now whilst a cynic could
extend the argument that much of what is on albums isn’t worth buying, the
simple fact is that not enough is being done to encourage multiple track buying.
This is something we’ve advocated for years in our European reports at Jupiter,
but still the online model is dominated by the 99 cent single.

Mark is a good analyst and an advocate of advertising supported music, but he fails to make the critical connection between ad-support and the digital album issue. An oft repeated theme of this blog is that advertising support monetizes the time spent listening (TSL) to recorded music.

TSL is independent of digital album or single track sales. Although I don't think so, one could argue that TSL is a dependent variable of single track sales, because TSL has risen as digital single sales have increased.

Ad-support makes many of the seeming problems of the recorded music industry irrelevant.

Props to Plies (and Sprint)

I love this. The New York Post is reporting that Sprint is sponsoring the release of a track by Plies onto P2p networks. The Sprint logo code is embedded in the track file and the logo will be displayed every time the track is played on a computer or MP3 player.

This is the first time I have heard of this ad-support play, but I think this will become a staple of recorded music. The device screen is underutilized space and adding a sponsor's logo adds virtually no cost at production or display.

The downside is that this is low-value advertising. The listener sees the logo momentarily and not necessarily repeatedly. A.L. Freidman at contentinople gripes that Sprint is only paying six-figures for the sponsorship. I think six-figures is a great payday, especially since the cost of serving the ads is nearly nil.

One small step for advertising, one giant leap for advertising supported music.

Profit Envy

I was reading the article in The New York Times yesterday, entitled All Shook Up, Right Down to the Musical Core, about the current Universal/Apple licensing dance. There was a sentence in the article that got me thinking.

Here is the sentence: "Most of all, they (label chiefs) envy that Mr. Jobs is in a much higher-margin business of selling gadgets." Think about this for a second; have you ever heard of CBS, NBC, or Viacom envying television set manufacturers? Or, Clear Channel envying radio makers?

Across every industry - except recorded music I guess - manufacturing is a low margin business (Price/Sales 0.6x) while media is a high margin business (Price/Sales 2.2x). This backward profitability relationship is another sign of how screwed up the recorded music industry is.

The answer, of course, is for recorded music to adopt advertising support as their new revenue model. Selling advertising inventory has historically been a high margin business. Worldwide, the recorded music industry has hundreds of billions of hours of inventory (TSL to recorded music) waiting to be sold.

Righting the Wrong Notes

An opinion piece was posted yesterday on Tech Digest entitled: Ad-supported music downloads hit all the wrong notes. The author makes a few points that I think are indicative of the views that many hold toward advertising supported music and most are wrong:

1. "Trouble is, as a music fan, I can't understand how these ads won't be intrusive." Correct, but: All effective advertising is intrusive. Anything you pay attention to is by definition intrusive. I really don't understand this Advertising 2.0 malarkey that ads should not be intrusive. Consumers might like non-intrusive ads (actually they won't even be aware of them), advertisers surely won't.
2. "But ad-funded music downloads rely on attaching adverts to songs or albums." Wrong. This is the method We7 is using and it will not work. The technology exists to insert updateable ads at unpredictable intervals between tracks of music. The ads are not attached to tracks. Check out Lirix, Inc.
3. "It's hard to explain, but it feels acceptable for TV shows to be broken up by adverts, but not for music. Maybe it's about the intimacy of listening to it on headphones..." Neither right nor wrong, but brings up a critical issue. It is the intimacy of the headphones that makes ad-supported downloaded music such a potentially effective ad medium if done right.
4. "Maybe I'm not the key target audience, then. Maybe it's the teenagers who've been downloading all their music for free off P2P services." Correct. Teenagers listen to more downloaded music and watch less TV than any other age group. They are the ideal target for advertising supported music.

Ad-Supported Music on Baidu

A couple of news items discussing advertising supported music that are worth checking out:

1. Business Week published an on-line article by Catherine Holahan regarding the spat between Universal and iTunes. Holahan suggests that UMG might be holding out of a long-term contract with Apple in order to keep its ad-supported music options open.
2. Baidu, the top Chinese search engine (which is traded on the NASDAQ by the way) and RMG, a leading Chinese music company, have struck a deal to provide ad-supported streaming music on Baidu. Visual ads will be displayed on-screen during the stream. This is an ineffective advertising model (Ala Napster and Qtrax), but a step forward for ad-supported music. I think China will be a huge market for ad-supported music.

Product Placement is Fergilicious

I never thought much about product placement in music but now I need to. It has been reported that Fergie signed a $4 million deal with Candies to promote the girls clothing brand in various ways, one of which is including mentions of the brand in songs on her upcoming album.

I think that if product placement in songs is done well it will not degrade the quality of the music and is definitely a plus for the artist.

Should product placement be considered a component of advertising supported music? It is advertising, and it does support the artist but what benefit does it afford the consumer? In my view, advertising support of content should lower the price of that content to the consumer.

I don't think Fergie's album will be any cheaper because of this deal (I hope it is) but I think that in the long term these deals will lead to free music supported by the advertiser. Only by lowering the price of the content will the advertiser get maximum distribution and maximum value from their investment.

My mantra has been that recorded music must emulate TV - free content supported by advertising where the metric of success is time spent with the medium. Product placement is now a staple on TV. With the advent of product placement in songs, recorded music is taking a step in the right direction.

SNOCAP and the Illusion of Progress

The New York Times reports that SNOCAP has signed a deal to sell DRM-free MP3 tracks from EMI. SNOCAP provides easy to plug-in music stores for websites.

The article contains this quote from Barney Wragg, the head of EMI’s worldwide digital division: “My whole mantra has been, you have to make it easy for people to buy music...”. If that is his whole mantra it helps to explain the problems that EMI has been having. I don't think it is at all difficult for people to buy music on-line - they just don't want to.

I guess what disturbs me is the mind-set of the recorded music industry that is reflected in the article. They continue to beat the dead horse of a revenue model that depends on selling units of recorded music (be it CDs or digital downloads). Their "innovations" are new ways to purchase music that may excite themselves; but leave the consumer completely uninterested. I guess efforts like these have value in the corporate world because they are talking points that give the illusion of progress.

SNOCAP is hedging its bets on track sales, however, by dipping its toes into the ad-supported music space. They recently announced a deal with the social network Imeem to provide advertising supported music streams. Nice but also irrelevant.

Also, check out this article, which has a good review of the on-line music space and talks about the SNOCAP/Imeem deal.