Chris Anderson, author of "The Long Tail," has an article in today's tomorrow's (it was posted online at about 7pm Monday) Wall Street Journal titled "The Economics of Giving It Away Free." This is a great time for a free model. There are a few issues. First, ads tend to support that free content. Good luck with that. And if ads don't support the free content, upselling to a purchase needs to support the entire model. As record labels know, consumers' willingness to pay for digital content isn't always strong.

The psychological and economic case for it remains as good as ever -- the marginal cost of anything digital falls by 50% every year, making pricing a race to the bottom, and "Free" has as much power over the consumer psyche as ever. But it does mean that Free is not enough. It also has to be matched with Paid. Just as King Gillette's free razors only made business sense paired with expensive blades, so will today's Web entrepreneurs have to not just invent products that people love, but also those that they will pay for. Not all of the people or even most of them -- free is still great marketing and bits are still too cheap to meter -- but enough to pay the bills. Free may be the best price, but it can't be the only one.

Funny that the sidebar has a link to and paragraph about Hype Machine, at which users can search through a trove of music blogs for MP3s. Yeah, the music is free, but the owners don't have much say in it. Anderson skipped this aspect of free in the article. Free as in pirated is worse than free as in ad-supported. Not the end of the world -- a pirated track is not necessarily a lost sale -- but not a model everybody is going to get behind.

Posted by Glenn at 6:07 PM | Link
|Ad-Supported Music|

The Financial Times reported today that Hulu, the joint venture video streaming site created by News Corp and NBC Universal, will soon pass YouTube in revenues. Hulu, which provides free, ad-supported streams of many popular television shows and movies, is available only to U.S. users and is expected to generate $70 million in 2008. YouTube is expected to have revenue of $100 million this year. Hulu does not traffic in user-generated content and has only six million users. YouTube has 83 million users in the U.S.

The implications for music are obvious. Monetizing the long tail through advertising is a challenge -- once you get beyond a certain level of decent popularity, the content is all but worthless to advertisers. If that content is licensed, the service provider will have to pay for each view. A percent-of-revenue deal would be better in this case since advertising revenue varies across content. If payouts to content owners are fixed, the less popular titles -- a sizable number in aggregate -- could easily result in a net loss after operating expenses and royalties. MediaMemo has more on the companies' differences in profit margin and operating margin.

Posted by Glenn at 5:04 PM | Link
|Ad-Supported Music|

Ad-supported music has some bright spots and some low points. I'm not sure where trueAnthem ranks, but I like its business model. The startup raised $2 million and added Adidas as a sponsor. Unlike most free ad-supported music, songs from trueAnthem are available as MP3 files (the ones I downloaded were 128kbps) and begin with brief audio advertisements. There is also an ad at the bottom of each widget from which songs are streamed and downloaded. The press release says ad-free tracks can be purchased for $0.99 apiece, but I have not found a widget with this option.

The question is, Through what will consumers suffer for free downloads?

VentureBeat is horrified by the idea of placing audio advertisements at the beginning of free downloads. I listened to many of the ads found them not to be very intrusive. In fact, I barely noticed most of them (hard not to notice Ultraviolet Sound's ads). The artist does a very brief announcement at onset of the song. There's no loud, barking radio ad voice, just an announcement of the song and the sponsor. It's like an artist introducing a song at a concert and squeezing in a thank you to the show's sponsor. I never mind an artist saying a few thank yous on stage.

Some people may use an audio editor to chop off the advertisement, although I think the ads are benign enough that few would bother. Many ads lay over music, so chopping off an ad would mean the modified track would have an abrupt start that's missing a bit of the song.

If all I've got to do for free music is listen to the artist speaking for three seconds before each song, sign me up...as long as they offer something I'd want in my collection. The bigger hoop to jump through, in my opinion, is signing up for an account and downloading each track one at a time. To its credit, trueAnthem made the process about as painless as it is going to get.

Like I said, I like the business model. It needs to achieve proper scale, either from maxing out the quantity of artists (could be hard to do while targeting ads) or getting some star power on board. And trueAnthem will need to convince consumers to purchase tracks. I'm far more skeptical about consumers' willingness to buy tracks from widgets, but the free, ad-supported side of the business has promise.

Posted by Glenn at 12:03 PM | Link
|Ad-Supported Music|

The Deal (via Ad-Supported Music Central) has an article with some stats on SpiralFrog. In the last week of June, founder and chairman Joe Mohen predicted six million unique visitors for the month. The problem with its catalog is evident in the fact that only 50% of searches were fulfilled.

SpiralFrog is available only in the U.S. and Canada, which have a combined population of 333 million. With six million uniques, that's 1.8% of all citizens. In both countries, there are about a combined 88 million people between the ages of 15 and 34. Again assuming six million uniques, the service is hitting about 7.4% of all people from ages 15 to 34 -- almost one in 14. We don't know anything about length of visit or total tracks downloaded, but that is a very large ratio for such a young and incomplete music destination. (My rough math assumes one user per household for the sake of simplicity.)

Posted by Glenn at 4:10 PM | Link
|Ad-Supported Music||SpiralFrog|

Details emerged this evening on the MySpace music service that News Corp is pitching to labels (and reportedly offering labels equity in the new company). Greg Sandoval at CNET NewsBlog posted information obtained from two sources. According to Sandoval, ad-supported music would be available as both downloads and streams, and News Corp brought up the possibility of adding "Buy Now" buttons.

The Financial Times also weighed in on News Corp's plan for a MySpace ad-supported music service. The wording ("would allow consumers to listen to music for free on their computers") hints that the service will not offer downloads, but no more details are offered. Just the fact that the Financial Times would write about the proposed service is the most important aspect of the article.

After the flat launch of ad-supported site SpiralFrog and the embarrassing and incomplete launch of ad-supported P2P service Qtrax, it's obvious a major player needs to step in and put together a service that can win over consumers. The labels need a company like News Corp and News Corp, as MySpace digs in for a fight against Facebook, needs record labels' involvement. Good timing.

Posted by Glenn at 10:49 PM | Link
|Ad-Supported Downloads||Ad-Supported Music|

• Ad-supported download site SpiralFrog has received a much-needed $2 million in additional funding in the form of convertible notes. The notes' interest is a tidy 12% annually, interest is to be paid quarterly and the principle is due on April 19, 2008. Between the company's IPO and these convertible notes, SpiralFrog has taken two of the more costly routes to raising money. (Press release, via paidContent)

• Digital track sales rose 47.7% in Britain in 2007. CD sales dropped 10%, according to the BPI. (Times Online)

• eMusic closed out 2007 with more than 400,000 subscribers (it was at 350,000 in November). The download site doubled its forecast for Christmas Day new customer trials. (Press release)

• An article for California residents or retailers doing business in California: A new California law, which went into effect yesterday, allows gift card holders to redeem for cash a balance of less than $10. (Modesto Bee)

• Antony Bruno has a list of artists that could possibly follow in Radiohead's footsteps. (Billboard)

• EMI artists are worried upcoming marketing budget cuts will hurt their sales. Gee, you think? EMI's problem is the same that William Hesketh Lever had a century ago: Half the money it spends on advertising and marketing is wasted, and the trouble is it doesn't know which half. If Terra Firma can figure out which half is wasted, EMI artists have nothing to worry about. But you know what? EMI artists should be worried. (Financial Times)

• MeeMix, which streams music matched to users' tastes, went live yesterday. (VentureBeat)

Posted by Glenn at 10:33 AM | Link
|Ad-Supported Music||EMI||eMusic|

In a quote to the Globe and Mail, SpiralFrog CEO Joe Mohan succinctly framed the difficulty in selling his business model:

"It's like going to General Motors and convincing them to give away the cars for free, in return for half the gas money. This was not an easy undertaking."

Getting label support will be tough if that's an appropriate metaphor. Give up a chunk of money for half of some trickles of revenue? The slickest of salesmen would have a hard time proving the value in that deal, and he might come to realize he's in the wrong line of businessl. It might work if people buy a lot more gas. Similarly, SpiralFrog's pitch hinges upon the bet that people will download a lot more music. Personally, I'd take a wait-and-see approach. If people actually binge on ad-supported music -- unlikely, I'd bet -- then it would be worth jumping in.

Posted by Glenn at 5:36 PM | Link
|Ad-Supported Music|

From the "Where Are They Now?" file comes SpiralFrog. There were a couple posts about the ad-supported music site yesterday.

One was at Silicon Alley Insider, which mentioned the invite-only Beta. "We hear they might launch next month" wrote Peter Kafka. "SpiralFrog's site says it has 700,000 tracks available, or less than 20% of iTunes' 5 million," he wrote. Of course, that one major that has a deal with SpiralFrog is Universal Music Group, which has a 28% share on the digital album share and a 36% share of the digital track market. That's the one major any start-up should have.

News.com was also on SpiralFrog yesterday . Wrote Greg Sandoval, "(founder Joe) Mohen said SpiralFrog will offer 700,000 songs at launch and be the first ad-supported site to offer video for download. He estimated that SpiralFrog will be ready for a public launch sometime before the end of the year."

Yesterday paidContent linked to a report of the Canadian beta that was posted in May. In the words of DigitalJournal, "My personal opinion is that this will cut straight into Apple's market share and it may make the marketplace more competitive as it moves forward."

I'll reserve an opinion until I test out the site, but I have a hard time believing SpiralFrog is going to do much to transform the digital music landscape. The company's executive staff has been a revolving door, and the product launch is nearly a year behind schedule. Then there's that pesky problem with the iPod-incompatible file format. Free, ad-supported music could take off, but is this dysfunctional company the one to make it happen?

Posted by Glenn at 10:37 AM | Link
|Ad-Supported Music|