Music Ally

UK-based ad-funded music service We7 is launching officially today, emerging from its beta period with a high-profile Big Listen marketing campaign.

Although the company still offers ad-funded downloads, its emphasis has shifted towards streaming, with deals with all four major labels and various independents, and a catalogue expected to be nudging four million tracks by the end of this year.

We caught up with CEO Steve Purdham to get his take on the launch, the downloads v streaming debate, and what impact the expected advertising downturn might have on services like We7. See below to read what he had to say.

You’re kicking off with the Big Listen campaign. What’s that about?

The We7 model is ad-funded music – as much music as you want for nothing, but the artist is still getting paid. But for that to work properly, you have to have the music that people want. The Big Listen is basically about that message – ‘unlimited access to as much music as you want’.

We’ve got deals with all the majors and an increasing number of independents, and we’re adding 30,000 tracks a day, so we’ll end up with three to four million by Christmas.

Are the majors as up for this as the independents?

The independents have got this for a long time, as they adopted new digital models a lot earlier, but the majors have done very well. Once they made the decision that DRM needed to be put to bed and moved to MP3s, that was a crossroads at which their mindsets became much more open.

We7 and a lot of other digital models show that there’s no single model that will work. So it’s important to allow multiple models, whether they’re ad-funded from We7, or subscription models, or all-you-can-eat. It’s going to be a combination of all of those.

What’s behind the shift away from ad-funded downloads and towards streaming? Do models based around ad-funded downloads have a future?

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.

There’s a lot of companies doing ad-funded music streaming already – how are you pitching yourselves against the competition?

The main one is local scale. There are a lot of ad-funded models coming to market – people like Imeem, SpiralFrog, Qtrax and so on. But if you look in the UK, Imeem can’t play full-tracks or full albums, it’s just 30-second previews. Deezer is based in France rather than the UK.

If you look at the UK, it’s Last.fm and We7, and even Last.fm don’t really push the ad-funded side as such. Nobody’s delivering full-tracks, full albums and unlimited plays in the UK.

But the real competition is still the piracy world. We have to make We7 easier than going to a pirate site if we want to make any inroads into the world of piracy. You’ve got to have free, it’s got to be easy to use, and you’ve got to have the ability for people to find the music they want. Up until now, most services haven’t actually delivered that.

Paid-for services won’t make any inroads against piracy. Free delivery, where people can consumer as much as they want, is where people have a choice. We think it’s easier to listen to an album on We7 now than it is to download from BitTorrent.

How careful are you having to be about saying We7 is ‘free’? Companies like Nokia seem nervous of the f-word, worrying what the labels will say if they portray music as free…

Well, in our case the music is free to the consumer, but paid-for to the artists and labels. We’re not trying to hide from the fact that consumers want to listen to music as much as they want. That to the consumer is free, but it’s an unusual phenomenon called ‘paid-for free’, shuffling the burden of cost to somebody else.

Of course, not everybody likes adverts, so on We7 people can listen to as much music as they want for free, and then buy what they love. If you’re thinking of buying an album, listening to 30-second previews is not enough. We’re selling the music at competitive rates in MP3 formats.

Have you seen any evidence so far that people who stream music for free are then buying some of it?

Well, we’ve been pre-launch, but there are two phenomenons that happen. We’re seeing that people are prepared to listen to albums rather than tracks. And we are seeing people buying as a result of streaming more music. It’s a strange balance – the labels would ideally want a 1:1 relationship [between streaming and subsequent paid-for downloads].

We’re not there yet, although I can’t say it’s 1:100, 1:1,000 or 1:10,000. But the key thing is that we’re giving consumers the choice, which is one of the biggest battles against piracy.

So what about this advertising downturn – if a recession strikes and everyone cuts their ad budgets, won’t new models like yours suffer?

Well, 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.

What about big competitors coming in and promising better ROI? For example, MySpace Music might come to the UK in 2009…

Yeah, 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?

So you’re targeting a wider audience?

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.

But music is not just a phenomenon of youth. Older people want to listen to music as much as 16 year-olds. We see a massive opportunity beyond the social networks. If you look at the Top 100 sites in the UK, they’re not dominated by social networks.

So this is where your new We7 widgets come in, letting tracks from your catalogue be embedded on other sites. Is there a revenue-sharing model involved – if I’m a website embedding We7 music, do I get a cut of the ad revenues?

Not as it currently stands, but there are benefits. If someone’s reading an article and listening to a music track, they’ll spend longer on the site, which impacts on the site’s other advertising and revenue streams. A lot of portals have the problem that people move from page to page too quickly, so the advertising load time is too small. Once you associate music with that, it changes.

But potentially once the model rolls out, the advertising revenue and even music sales could be shared, much like the affiliate model. But it’s not clear enough to say what that will be yet.

We think the beauty of the widget is for unofficial fan sites – people who just love music – and the ability this gives them to play music without being targeted by the labels. If you have a fan-site, you can now legally put as much music on there as you want. So it’s not just targeting big portals – it’s fan sites for, say, Christina Aguilera too.

Tags: we7

This entry was posted on Tuesday, November 11th, 2008 at 4:21 pm and is filed under Interviews. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.