After more than one year of beta testing and 18 months of development, British ad-supported music service We7 officially went live today. Initially We7 was designed to offer free unprotected MP3 downloads that are paid for by advertisers. In recent months the company had shifted its focus more to ad-funded streams, most likely due to the unwillingness of major labels to license catalogs for a business modell that suggest music is “free”.
Here is what CEO Steve Purdham had to offer in an interview with Music Ally:
“For us, streaming is an addition. Half our catalogue will be available for streaming AND ad-funded downloads, but everything will be available for streaming. It’s just a recognition of a simple economic situation to be quite truthful. The mindset of where a lot of labels are does not yet allow the economics of ad-funded downloads to really come to the front. But it’s like DRM versus MP3 – I think there won’t really be a difference in the future between ad-funded streaming and downloads. It’s for the convenience of the consumer, whether they want to listen to something now or while they’re travelling. There are economic changes to be made, but it will get there.”
For We7’s current model all four majors, The Orchard and PIAS have licensed their repertoire and the service holds around three million tracks right now, with some 30,000 being added daily. Users who want to keep songs the liked hearing as a stream will be guided to the We7 store where they can purchase MP3s. Not all tracks available as stream are in the download section, yet. We7 says around half of the catalog will become available in the next 90 days. In the meantime, We7 links to iTunes for purchase requests it can’t fulfill.
Purdham had some more thoughts. For instance, about competitors like MySpace Music:
“We think MySpace Music will probably launch in the UK early next year. And based on the conversation we just had, MySpace Music will prove that the model from the historical terms won’t exist, but that scale will generate more money if you’re prepared to go down [in rates].
MySpace did about a billion streams in its first few days. A billion streams at current rates for the collecting societies results in about a cent a play, which means the cost base of that billion streams is about $10 million. They’ve only raised $100 million for MySpace Music! They’ll run out of the money in less than 60 days…
Okay, I know they’re not going to run out of money, because they’re signing multimillion dollar deals with advertisers. But I bet they don’t cover $10 million of music spend on a weekly basis. But I see MySpace Music as providing a good series of metrics that will allow people to understand there’s less risk in accepting a small rate for ad-funded music, because the potential return is higher. It’s the scale model, and once you introduce that, when you’re doing 10,000 streams instead of 100 streams, people will take a point of a penny [in rates] because at the end of the day, the amount they get will be higher.
MySpace Music will demonstrate those metrics quicker than we can. But from a competitive point of view, MySpace’s demographic is 16-24 year-olds. What about everybody else? It’s not just about the social networks – what about the social notworks? Our demographic is 69% male and 31% female, but if you look at the age grouping, male is equal across the 14-24, 25-34 and 45-54 year-old categories. We’ve got as many 45-54 year-old listeners as we do 15-24 year-olds, in males. Females are much younger – 50% of our female users are below 24, so they potentially will be impacted more by MySpace Music.”
And here are his thoughts on the online advertising market and the music business model connected to it:
“The reality of the situation is that any recession creates caution. If you look at digital advertising spends, in the UK next year they’re forecast to be somewhere in the region of £3.4 to £3.5 billion, but people are already saying they won’t be that big, probably more like £3.1 to £3.3 billion.
But that’s still 18% growth. There’s money to be had in the digital advertising space, but you have to deliver a return on investment. But we’re getting some great support at the moment. Littlewoods have come on board for the launch, and at the smaller end, we’re getting smaller companies coming in who’ve never advertised before.
People often forget that advertisers have got choices. The music industry needs to realise that music isn’t special for an advertiser – it’s just another choice. They can advertise on TV, on the bus, in newspapers and magazines, on websites, through search engines, or go with a We7.
All those choices have economics already in place – people know how much they’ll pay to reach 1,000 people – it’s anywhere from 50p to £25, but they’re not going to pay £500 or £1,000 a thousand. So some of these economic models are relying on getting advertising rates that they’re simply not going to get.
So for us, it’s about balancing the economics of the advertising world with those of the music world. I know I can get £10, £20 or £50 million worth of advertising at the right price, or no advertising at the wrong price.
So if I go and say I can tap an audience listening to music based on £1 per thousand and the ROI is x, I’ll get a lot of advertisers. If I say it’s £100 per thousand, I’ll get no advertisers. So it’s getting that balance. Some things restrict that – current agreements make it difficult for some ad-funded models to get off the ground. But I believe things will change.
The real power of this is how much do I, if I’m an artist, get over a year from an individual service? Can We7 deliver £20 per year per user? If we can, that’s better than iTunes. So that’s where it becomes not just putting music up on our site, but also building the value proposition so that advertisers know that the We7 audience is a valuable audience, with the right demographics and response rates.”
