Advertising: We Say We Can't Live With it But We Sure Don't Want to Live Without It

The British law firm Olswang released their 2007 Consumer Convergence Survey this week



From their press release:

Consumers demand free online content; is advertising the only answer?

The Olswang Convergence Consumer Survey 2007 has
revealed that, as consumers become increasingly connected using a range of connected devices at home and on the move, they are demanding more rich media content but are still reluctant to pay. To secure free content consumers are willing to tolerate online advertisements which they would normally go out of their way to avoid.



Here is one of the relevant charts:

Data is for on-line audio-visual content but I see no reason why it wouldn't apply to downloaded music.

One more survey supporting the notion that people don't want to pay for content.

The Marriage Between Mobile and Music

I have written several times before that cell phones are a natural platform for advertising supported music.

The key connections between cell phones and ad-supported music are:

• Cell phones are optimized for audio, and music is an audio medium.


• Cell phones are essentially a beefed up portable MP3 player.


• Advertising supported downloaded music enables advertising to be pulled and delivered in a natural way.
  

The data show that cellphone users are overwhelmingly receptive to getting ad-supported music on their cellphone:

With the release of the Android open source mobile operating system by Google, and Verizon's announcement yesterday that they will open their network to all handsets and applications meeting minimal requirements, the path to ad-supported downloaded music on cellular phones has been cleared of many obstacles.

Advertising supported music on cell phones will rock the music and mobile worlds.

2008 Will Be the Year of DRM-free's New Clothes

Here is my first new year's prediction and it comes in two parts:

• Part 1 -In 2008 all digital music will be available as DRM free downloads.
• Part 2 - This will have no impact on music sales.

I have written before that DRM is a non-issue for most of the music buying public. It seems only to be an issue for the music elite.

The trade association that represents music retailers in the U.K. is the latest to call on the recording industry to drop DRM. This group joins the many who will soon be disappointed by the impotence of DRM-free.

The evidence of DRM-free digital's failure to perform is starting to come in:

• Music storefront 7 digital reports that nearly 80% of downloads from its store are DRM-free (they didn't report any increase in sales). Other stores are probably seeing similar numbers.
• "Overall, the number of digital songs sold each week seems to have been unaffected by the launch of the major DRM-free stores since May, according to data from Nielsen SoundScan. Digital song sales - both of tracks with and without DRM - are in the same range after May as they were in the weeks before DRM-free sales started." From an article in the San Jose Mercury News last week.
  

Conclusion - DRM-free sales are increasing because they are replacing DRM sales. DRM-free is not growing the market.

So again my prediction - next year all digital music will be available in DRM-free versions and it won't halt the slide in recorded music revenues one bit.

What will everyone pin their hopes on when they see that DRM-free has no clothes?

I can only hope they will get real and get serious about ad-supported downloaded music.

Tuesday Tantalizing Tidbits

MySpace Ad-Supported Music Experiment - It has been widely reported that MySpace is trying out ad-supported music. From AdWeek: "Next March, fans of punk band Pennywise can go to stores to buy the group's ninth album. Or they can go to the MySpace profile of Textango, a mobile music distributor, and add it as a friend, which will allow them to download the entire album for free."

This is a minor move for an Internet giant like MySpace. Obviously I'll continue to watch what MySpace does in our space, but so far nothing to get excited about.

Fallacy of the Concert Savior - Last month I wrote that many in the music industry were fooling themselves in believing that touring dollars could make up for lost recorded music sales.

I don't always agree with Jupiter analyst David Card but I do agree with his quote in this Red Herring article: “A lot of casual observers would say recording music is just an ad for touring,” Mr. Card said. “Madonna and others make a lot of money out of touring, but most other bands don’t.”

Warner Stock Price Chart - This is a bit of a non sequitur posting, but here is a chart of WMG's stock price over the past year. The decline is greater than the decline in CD sales.

Maybe the RIAA should adopt the negative sloping arrow as their symbol?

On a related subject, read this profile of Universal Music chief Doug Morris in Wired. Here is the first line of the article: "It's Monday afternoon, and Doug Morris, chair and CEO of Universal Music Group, is eating lunch in his private dining room at the company's Manhattan headquarters."

This simple descriptive lead evokes everything that is wrong with the recording business. Great writing.

We7 CEO Interview - hypebot has a short interview with We7 CEO Steve Purdham.

Slacker is a Turkey

Here is my association between ad-supported downloaded music and Thanksgiving:

I have been thinking more about the Slacker player since I wrote about it last.

I didn't like it much then and I like it less now.

It is a costlier, lower performing, more complicated de-invention of terrestrial radio. It is a perfect example of just because you can doesn't mean you should technology.

The Slacker player is a turkey.

Tuesday Tantalizing Tidbits

Digital Music Sales - Jupiter released its latest forecast of digital music sales. From David Card's blog: "Combined, spending on downloads and subscriptions -- what we call "digital music" -- will surpass $1.3 billion in 2007 and grow to $3.4 billion in 2012. That means digital music, which accounted for only 9% of consumer spending on music and ring tones in 2006, will total a whopping 34% in 2012. That's because the bottom continues to drop out of CD sales, and the overall pie ends up shrinking."

Napster Phone: From an article in Information Week yesterday: "AT&T on Monday unveiled the SLM by Samsung, a lightweight clamshell cell phone that's designed for music and multimedia. The phone is AT&T's first to include Napster Mobile, a new service that allows subscribers to search a catalog of five million songs, preview snippets of songs, and download them wirelessly. AT&T's SLM by Samsung is a durable clamshell-shaped cell phone packed with music and multimedia features. AT&T initially announced its plans to roll out the mobile service with Napster in October. Subscribers interested in using the service have a choice of downloading five tracks a month for $7.49 with the Napster Mobile Five-Track Pack plan or purchasing songs for $2 each without the plan. "

Could it be that their business plan is actually not to sell any music?

Radio Spectrum Shifted to Mobile: From a Financial Times article yesterday: "Valuable radio spectrum now used mainly by broadcasters is to be opened up to broadband services offered by mobile phone operators under a United Nations agreement endorsed on Friday by governments from over 160 countries."

With terrestrial radio's audience rapidly declining as listeners shift their time to MP3 players, is this any surprise?

The MP3 player, not the radio, is the ad-supported music device of the future.

Advertising Fuels Mass Media: According to this article on Yahoo! News, ad-supported content will drive Internet use on mobile phones. Here is my favorite quote from the article:

All mass-media are financed by advertising," said Douglas Edwards, founder Handmark. "Advertising will inevitably" become the main source of revenue, he said.

Edwards is right. And his point applies equally well to recorded music.

Music 2.0 is 2 complicated

Is it just me, or does the new crop of music start-ups seem overly complex to you too?

imeem, ilike, RCRD LBL, slacker, etc.; I don't get what they stand for from a user's point of view or from a business perspective.

Nikon is apparently partnering with RCRD LBL (interesting mix of visual and audio) and the company has a podcast of an interview with Peter Rojas on its site. Glen at Coolfer transcribed this portion of the interview, where Rojas describes what RCRD LBL does:

We're taking the A&R function, the discovery function of a record label, and marrying that to the great platform that you have as a blog, not just blogging as a genre but really blogging as a format or as a platform, as a publishing platform for getting niche content out there. What we recognized was that if we were going to put music out there for free then a blog was really the ideal platform to do that, and to have a place where music fans could go and everyday be turned on to something new to an artist they already know or discover something brand new that hopefully they'll like.

Huh?

Or how about this from a Last.fm press release:

Martin Stiksel, co-Founder of Last.fm. “Teaming with Ning to embrace the new OpenSocial standard is a first step towards an easy solution for our users to share and build their music tastes virtually wherever they are.

Build their music tastes virtually?

We have a lot more technology available to us today, but the essence of why people listen to music hasn't changed.

Current and future music 2.0 entrepreneurs! Heed the wisdom of some of the mavericks who built the modern recorded music industry:

• Clive Davis in 2003: "...my job now is the same as ever. That is, deliver transcendent talent."
• Berry Gordy: "So I got a job on the Ford assembly line. And every day I watched how a bare metal frame rolling down the line would come off the other end a spanking brand-new car. Wow, I thought. What a great idea. Maybe I can do the same thing with my music – create a place where a kid off the street can walk in one door an unknown and come out another door a star."
• Herb Alpert: "I learned the craft of recording years back when I was working and watching Sam Cooke record. I was party to some of the great recordings he did. I watched the Pilgrim Travelers, one of the greatest gospel groups in the country, and when Sam Cooke said to me,'They don't care whether you're black or white, they just listen to a cold piece of wax, man, and it either makes it or it don't.' He cut it right down to the quick. He identified what I was looking for, which is it either works or it doesn't, there's no mystery to it."

The first great Internet based music product was iTunes. You go to the iTunes site, pay $.99 and download the track you want. The next great Internet music product will be an iTunes-like site where you pay $.00 and download the track you want (it should go without saying that this site will have the right ad-supported model).

People want to conveniently get the music they want at the lowest possible price. The other features - blogging, social networking etc. - are fluff.

Let me take you out with this piece of sage advice given by Berry Gordy to the 2007 graduating class of Occidental College: "The next thing I want to tell you is to keep everything simple."

Slacker Player: An Overpriced FM Radio

Fast on the heels of the RCRD LBL launch yesterday, Slacker announced details of it's portable player.

Here is a succinct description of the Slacker service and player from USA Today:

Instead, a selection of songs from your favorite artists is transferred to the Slacker portable player from your PC. New songs are added every time the player is hooked up. They are stored on the player, so you don't need an Internet connection to listen.

You have little control over what Slacker selects, beyond identifying what artists you like. That may not sound like true Net radio, but Mudd says consumers don't care. "Being connected to Wi-Fi isn't the way to go. There could be static, or you might lose the signal. This way the music is always there."

The Slacker Portable has a 4-inch screen, larger than most iPod screens. You can personalize selections, to a degree, by clicking on "heart" and "ban" buttons that help Slacker figure out your tastes. An ad-supported version of the service is free; $7.95 monthly without ads.

The device starts at $199.99 with 2 GB of storage (roughly 1,000 songs) and 15 stations, or $249.99 for 4 GB and 25 stations. The entry-level iPod Nano, by comparison, is $149 and has 4 GB of storage.

The Slacker player is overpriced and inferior compared to the iPod and Zune (note the big screen but no video capability!). Anyone who buys the Slacker player would be paying a premium to get the ad-supported music service.

I think it is possible to charge a premium for a player that provides free music, but Slacker is not that player. Free ad-supported music that I don't choose? I can get lots of channels of that on a portable FM radio that cost me only a few bucks.

Slacker is a non-starter as an ad-supported music service. Simply no chance.

If its possible, Slacker's chances of making it as a paid music service are even worse. This blogger does a better job of laying out why then I can.

I do have one positive thing to say about Slacker. There is some interesting technology on the player to control ad and track skipping and copying. Features like these are necessary to implement ad-supported music on portable players.

In this one way, Slacker is doing something to push the ad-supported music industry forward.

Bottom line, however, is that Slacker is another example of how the desire to be in the music business makes smart people do dumb things.

RCRD LBL Launches

RCRD LBL, the newest ad-supported music service went live this morning. The entrepreneur behind RCRD LBL is Peter Rojas, founder of engadget.

I have a few minor comments about the service:

• Definitely has a NYC hipster feel and focus. Content only from indie labels.
  
• Has social networking features, the Web 2.0 requirement du jour.
  
• I read on Silicon Valley Insider that the service will pay "per-song advances of $500 to $5,000". This works for their limited offerings but will not scale.
  

And I have one major criticism of the service:

When I wrote about RCRD LBL earlier this summer I said that it would be a streaming service only, which apparently is incorrect. Users can download DRM-free mp3 tracks. By eliminating rights expirations, RCRD LBL differentiates itself from Spiralfrog.

However, like Spiralfrog, RCRD LBL relies on advertising revenue from ads on its site. This will not work - high value content cannot be supported by low value ads, nor can the ads be effective when separated from the content they support.

Rojas fails to recognize that the secret sauce of advertising supported music is the integration of advertising with the music.

I feel that RCRD LBL is a service put together by people who want to be in the music business, not the advertising business. Sorry, but the real business of advertising supported music is advertising.

The Record Business Needs a Rupert Murdoch

It is being reported that Warner and EMI are both evaluating their strategic options going forward:

• WMG (as reported by the Financial Times): "Mr Bronfman and his private equity partners, which together control about 70 per cent of Warner’s shares, have been mulling a range of strategic options that include securitising Warner’s music publishing catalogue, making another offer for rival EMI or going private."
  
  
• EMI (as reported by The New York Post): "Just how Terra Firma gets there remains to be seen, but the private-equity firm said it isn't ruling out "large-scale transformational acquisitions/business combinations," including deals with other recorded music companies, touring companies, and artist management businesses. It's also looking at a number of smaller-scale indie labels, and has at least $100 million set aside for purchases with hopes to raise that figure to $200 million. Also on the table are more partnership-oriented deals with artists that would allow EMI to participate in merchandise, touring and sponsorship revenue, and more distribution and marketing of indie label catalogs."

Both firms somehow think that buying more labels will help them, but potential cost savings can never be enough to make up for lost revenues.

Terra Firma's plan for EMI is so exceptionally unrealistic that I don't think it is wrong to call it delusional: "At the same time, Terra Firma is looking to improve the recorded music businesses' cash flow by a whopping 766 percent over the next five years - from an estimated $43 million in 2007 to $1.1 billion in 2012 - by driving over $700 million in improved margins from online and mobile music."

Both of these plans are doomed to failure. The market for selling recorded music is going away and no amount of tinkering can revive it. The CD is the new buggy whip.


I propose that Guy Hands or Edgar Bronfman take the radical, dramatic and transformational step of declaring that their company will no longer sell recorded music and instead will distribute only ad-supported music.

AOL did this. Executives thought the move to ad-support was so important to the company's future that they were willing to take a $2 billion revenue hit. The new CEO of Time Warner says that this decision was one of the most important of his career.

Rupert Murdoch is saying that when his deal to buy Dow Jones closes, he will probably turn WSJ.com into an ad-supported site (by the way, WSJ.com is one of the few successful paid newspaper sites on the Internet).

I have said before that the music business needs leaders who are revolutionaries, not incrementalists. It needs entrepreneurs.

Hands and Bronfman are not entrepreneurs. They will fail. When they do EMI and WMG will be sold at fire sales.

Perhaps then someone like Rupert Murdoch will buy these companies and save the industry.

Tuesday Tantalizing Tidbits

Some interesting news items that readers should know about:

360 Deals - The New York Times has a good article about the growth of 360 deals between artists and their labels. I don't understand why any artist would sign one of these deals.

The seeming logic for the artist is that if they sign a 360 deal, the label will work harder to publicize them and sell their recorded music. But, the labels are pushing these deals for the very reason that they can't sell recorded music.

360 is just a less threatening way for the label to tell the artist: I want all your money.

Check out this post from Inside Music Media on the increasing irrelevance of the record label for established artists.

New Convert to Ad-Supported Music? - Gerd Leonhard has been one of the leading proponents of the "blanket license"; a tax on ISPs to pay for unlimited access to music.

I just came across this video of him saying that: "Music can be entirely paid, easily, by advertising." Go to about 5:30 in the video.

Can't get video to embed so here is the link.


Dalton Caldwell Interview - In a similar vein, Bruce from hypebot, has a short interview with Dalton Caldwell, the CEO of imeem. Caldwell says:

There is a tremendous market opportunity for ad-supported music to work on a
large scale. We could easily see a reality where total digital revenues
from advertising dwarf download sales.

Of course, I agree.

Real/Wendy's - Wendy's has teamed with Rhapsody to give away up to 100 million downloads during the holiday shopping season. We have seen this promotional subset of ad-supported music before (Pepsi) and will see a lot more of it in the future.

Zune - The new software becomes available and the new Zune's go on sale today. No question both are an improvement and bring the Zune experience closer to the iPod experience.

Still I think Microsoft continues to miss the boat on ad-supported music. Microsoft is in a position to dominate this new medium, but continues to ignore it.

Music, Emotion and War

Following up on my last post; Music, Emotion and Advertising, and in honor of Veterans Day, I want to point you to a couple of stories about the power and importance of music to soldiers at war.

The first is a radio story from the show re:sound. Worth a listen.

The second is a newspaper story about soldiers in Iraq who made a hip-hop album about their experiences called Voices From the Frontline.

Music is an emotional modulator.

For soldiers music can psyche them up before battle or soothe them after.

Music, Emotion and Advertising

Is there a song that brings up powerful memories for you?

I came across a radio series devoted to this question called Song and Memory. Here is how their website describes what they do:

About This Series
Songs have a way of bringing things back: a place, a person, a time. Here on Weekend America we're asking you about the one song that unlocks all those those memories for our "Song and Memory" series.

Listening to the pieces got me thinking again about the powerful scientifically proven connection between music and emotion.

This connection is possibly one of the most significant and unique advantages of advertising supported music over other media. I did a completely unscientific, but interesting, test and searched on these terms in Google Scholar: "emotional response to television" and "emotional response to music". The television query returned 35 results, the music query returned 294 results.

The question that I'm thinking about is how can the ads in advertising supported music leverage the emotion elicited by the music to enhance the brand association?

What is so great about ad-supported downloaded music is that the listener chooses the music and thereby makes a statement about his current state of mind.

The potential effectiveness of ads matched to that state of mind, through the music, blows my mind.

Media Multitasking and Ad-Supported Music

Is media multitasking friend or foe to advertisers?

From the chart below, I conclude that the answer is friend - for the advertiser using the medium of advertising supported music.

Nearly 80% of music listeners multitask. The inverse of this statistic is that people are often listening to music while engaging with some other medium.

In a multitasking media fight, ads delivered through music will win because of the aural nature of the medium.

Further, the ads will often be delivered directly to the listener's brain through speakers implanted in their ears (head/ear phones).

A couple more powerful unique characteristics of advertising supported music.

Time Spent on Facebook Limits Advertising Potential

Facebook announced their new advertising program, Facebook Ads, yesterday and today Google lists more than 800 articles on the topic.

Is there anything new to say?

I think there is. As any regular reader of this blog knows, I am pretty focused on looking at advertising through the lens of time spent with the ad-medium.

Let's look at Facebook Ads this way.

In July Neilsen/NetRatings began measuring websites by time spent on the site in addition to the previous industry standard page view measurement. Time spent is the gold-standard ad-medium measurement. Evaluating websites by time spent is a sure sign that the Internet is maturing as an ad medium.

The authors of The Between the Lines blog have even come up with a time spent measure just for Facebook:

The result of all this Facebook activity is what could be called Facebook Time, or FaceTime, which is the amount of time spent engaged with Facebook per day.
Face Time coefficient: number of friends + number of applications used/time spent per day = FaceTime.

So how much time do people spend on Facebook? Here is data from Neilsen/Net Ratings for time spent by UK Internet users for the month of August 2007:


That comes out to about 5 minutes per day. Nice, but keep in mind that the TV is on in the average house for more than 8 hours a day. (Television is the 800 pound gorilla in the advertising world and will remain fat and powerful so long as time spent numbers like this last.)

How does time spent with Facebook compare to TSL to recorded music?

So people spend about 120 minutes per day with their MP3 players and about 5 minutes per day with Facebook. If the ad potential of Facebook is great, then what is the potential of ad-supported music?

I admit I am not comparing apples to apples. Ad-supported music is an entire medium and Facebook is only one channel on the Internet medium. In addition, Facebook Ads has some powerful advantages like great targeting and social leverage.

However, the revenue potential of Facebook Ads will always be limited by the amount of time users spend with it. On the other hand, significant and growing TSL is one of ad-supported music's great strengths in a fragmenting media world.

The Truth About In Rainbows

Yesterday comScore released its data on the In Rainbows download experiment.

Worldwide, 62% of downloaders paid nothing:

And the average amount paid was $2.26:

Some commentators see this experiment as a success:

• John Paczkowski of All Things Digital: "38% of listeners who could have downloaded the album for free paid for it instead. And that’s something, isn’t it?"

• Peter Kafka of Silicon Alley Insider: "That said, this still doesn't mean that Radiohead's ditch-your-label strategy was a bad call: comScore's survey suggests that the band still netted $2.7 million from downloads, and will keep almost every penny -- and it still gets to sell CDs, and it will keep a larger portion of each dollar generated by those sales.Most important, Radiohead has complete control of the process, and will own the music it created in perpetuity."

I, for one, don't see this as a success for Radiohead. Radiohead is one of the biggest groups in the world, they have a loyal fan base and still they grossed only $2.7 million?

I certainly don't see a future for the model of giving recorded music away (without advertising) in the hope of making money from touring.

Further, I would conjecture that once the novelty of these "name-your-price" schemes wears off, the percentage of people who pay will fall to near zero.

Fred Wilson writes in his blog:

There are two kinds of music customers these days; the ones who will pay for music and the ones who won't. I am in the former, having been indoctrinated into the process of acquiring music 35 years ago. But I know plenty of people who are in the latter category. They can't bring themselves to pay for something that is available for free. They are the freeloaders and they are apparently 60% of Radiohead's fan base.

I've argued loud and hard on this blog for the past four years that the music industry cannot ignore the freeloaders. It needs to come up with a model to service this group. It's getting bigger not smaller.

Fred, ad-supported downloaded music is the only model that can make money and serve the freeloaders.

I challenge anyone to come up with an instance of another model in the entire history of the world that has enabled content to be provided freely to consumers while earning money for the provider.

The model is right under our noses. I get frustrated by those who think that the wheel needs to be re-invented for music.

Let's get on with it and make some money.

Warner Music Downgraded; Ad-Supported Music Upgraded

From a report on Warner Music Group (WMG) by analysts Richard Greenfield and Mark Smaldon of Pali Research (highlights mine).

Good discussions on the report here and here.

Right on Richard and Mark.

Radio TSL Reaches for Bottom

Here is a picture of an e-mail I received from Paragon Media Strategies (highlights mine). They are a radio consulting and research firm. I posted results from their latest TSL survey last week.

You can access the post they refer to here.

I guess the TSL data is disconcerting if you are invested in radio. To those of us invested in ad-supported downloaded music, this data is very concerting (?).

BTW Paragon Media Research - I think that for all intents and purposes, at least for young people, the bottom has fallen out.

Tantalizing Tidbits

This weeks's Tantalizing Tidbits:

1. Advertising Supported Music Graphic

Last week the Audioporn Central blog referenced our motto and posted this graphic:



I kinda think the graphic complicates the simple concept of advertising supported music. Still, I like it. Also love the name of the blog.

2. Terra Firma Gets Buyer's Remorse

The New York Post reports that the private equity company that bought EMI, Terra Firma, is trying to get investors to take more equity in the company. The Post quotes sources who say that Terra Firma would do this only if they thought they had made a bad investment.

I am not at all surprised. Terra Firma paid way too much for EMI. Private equity shops like Terra Firma are savvy investors and rarely overpay. It is clear to me that this was an ego deal for the CEO of Terra Firma, and now CEO of EMI, Guy Hands.

It must be pretty heady for a middle-aged successful businessman, who grew up in the heyday of rock-and-roll, to run a record company. Just look at Edgar Bronfman.

3. Good Article on Media Post Today

In today's Online Spin column, Cory Treffiletti has a piece on monetizing P2P networks. It is a good review of the challenges of implementing an audio or graphical advertising solution with P2P content. Read it.