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Digital
We7 covers free services costs with ad revenues
By CMU Editorial | Published on Wednesday 28 April 2010
We7 has announced that last month its free-to-use on-demand streaming music service was fully paid for by ad revenues, ie no subsidy from We7’s start up funding was required. Management there reckon they are the first licensed ad-funded on-demand music service to actually break even from ad sales, and they’re probably right.
Commenting on the achievement, We7 boss Steve Purdham told CMU: “Making ad-funded music on-demand add up has been our single ambition since We7 first started. We’re thrilled to be able to say that We7 can deliver real value to music lovers, rights owners, artists and advertisers alike by making it add up in a fair way. Music matters and should always have value even if consumers choose not to pay. The model is not unique – we have seen it for decades in TV and radio – but for music on-demand it was critical to ensure that the rights owners and songwriters get paid a fair rate whilst stamping-out piracy”.
He continued: “Now that we have achieved this momentous milestone we feel confident about increasing scale. Music has never been a ‘freemium’ model – the key going forward is protecting the value of music with smart economic delivery. It should also be said that we could only make this happen by good support from the major and independent record labels, artists and the PRS For Music”.
We7 says it is making its ad-funded model work by demonstrating value to its users, making the on-demand experience very easy, and by having advertising built into its platform in a multitude of ways from day one. Purdham has always been very candid about the business models behind We7, and the challenges his company faces, whereas his biggest rival Spotify have always been rather secretive about their finances, their deals with the labels, and how their business adds up (or doesn’t).
Of course, while Spotify remains very popular with music fans, a backlash has begun in some parts of the artist community who have hit out at the royalties they are receiving, which they reckon are unfairly low given the success of the service. However, those royalties are based on deals between Spotify and the labels and PRS, and are being paid despite the streaming music service clearly being in a loss-making part of its business plan.
Arguably artists have to see the bigger picture regards the future potential of Spotify-style services as revenue earners, or at least take out their frustrations with labels and collecting societies who agreed to the current royalty rates. Presumably most of Spotify’s rivals are paying similar rates, and the backlash to the Swedish service has, therefore, been more vocal because it is widely perceived as being the most successful, even if that’s loss-making success.
