One Small But Important Step To Making Ad Supported Content Viable

Mark Mulligan[Posted by Mark Mulligan]

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UK
collection society PRS has announced that it will halve its per track streaming
fees
.  This is an important step, but the
significance will diminish if it proves to be an isolated move.  The bottom line is that the business of
making money from record music is shifting from a distribution model to a
consumption model.  Because most of that
consumption is free, the ARPU potential is much lower than for CD buyers:
either it’s nothing (i.e. P-to-P) or it’s not a lot (i.e. ad supported
streaming).  So monetizing consumption is
about playing a scale game, where the potentially larger monetized audience
compensates for lower ARPU.

The principles here are not limited to music.  Indeed as we move deeper into recession the
dynamics of all ad-supported on-demand content come under even more intense
pressure as more people seek out free content but advertisers become more
cautious with their spending.  (See my
previous post
for more on this, and Forrester clients see my report for a
complete analysis). 

Ad-supported business models will be key to successfully
monetizing content audiences online, whether they be music, video, games or
news.  The recorded music business is,
along with news, at the bleeding edge of this dynamic.  The successful transition will require
stakeholders right across the various value chains taking the ‘long view’, focusing
on nurturing evolving business models.  But
at the same balancing the need to ensure that ad supported business don’t
flourish at the expense of their premium businesses. 

Scale is crucial to the economic viability of the ad
supported sector, both for the services and the content owners.  Moves such as that by the PRS will help scale
be achieved throughout the challenging phase of establishing business models
during a recession.