Digital and internet music subscription services can survive on advertising money alone. Realy?

In a June 8th 2012 article in Digital Music News written by Paul, Alexis van de Wyer, president at Adswizz, believes that music streaming services such as Pandora, Spotify and Last FM can survive on advertisement money alone. Alexis argues this statement by saying that the afore mentioned music streaming services have experienced enormous growth in user base but have not been able to properly monetize this user base. Alexis believes that a more stringent focus on possible monetization techniques and an improvement on their weakly developed sales force could make these music streaming companies exclusively viable on advertisement dollars. My take, this is possible so far as these music streaming platforms have the right product to attract traffic/eyeballs.

Looking at the effect of such a business model to the industry, I see a correlation with the film industry. There has been an influx of product placement done by companies such as P&G, Ford and Audi. These companies have sponsored feature film productions with money from their marketing budgets by placing their products strategically in scenes during the picture for visibility. For such a product placement to be done with these music streaming companies, Pandora for example will need to have a well-developed database for its advertising clients. With proven data and successful ad campaigns conducted on music streaming audio platforms, it can then for sure be concluded that music streaming services can survive entirely on ad revenue. This will be a win-win situation for the music industry and the music streaming services because the artists, labels and music streaming services will benefit from the ad revenue depending on the deal structures put in place.

For the music streaming service to be viable, I believe the deal structures made with music labels should be at 70-30% for ad and member subscription revenues with the streaming services taking the bigger share of the pie. I’m not familiar with the licensing deals made by Pandora or Spotify but it is evident that the music streaming service business has not been doing great with the huge expenses. The streaming services need the bigger share of the pie because the they might be paying licensing fees for the music acquired from the label besides other fees such as marketing, operational, customer acquisition and retention. The deal structure is key to the success of any business that relies on partnerships or licensed products because if the owner of the product decides to pull their product off the market, the licensee will be out of business.

By Gerard Ngwang


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