RAIN 11/19: Industry considers future of ad-supported music as services suffer

According to major label vet Ted Cohen , “the main problem centers around the minimums [that services pay labels for the use of music],” he wrote. “The economics just don’t work. A ‘mea culpa’, I was a big proponent of per-track minimum rates for both paid subscription and ad-supported services when I was at EMI. I WAS WRONG!”

Those involved in, and observers of, online music industry are coming to the conclusion that free-to-use, ad-supported services simply aren’t working.

According to major label vet Ted Cohen (pictured), “the main problem centers around the minimums [that services pay labels for the use of music],” he wrote. “The economics just don’t work. A ‘mea culpa’, I was a big proponent of per-track minimum rates for both paid subscription and ad-supported services when I was at EMI. I WAS WRONG!”

The idea that current advertising revenue won’t come close to meeting the costs labels demand for licensing music isn’t new at all. And now labels and businesses may soon be reaching a point where something has to give.

MySpace Music is acquiring most of the assets of streaming music service iMeem, reportedly for around $1 million in cash. Both are struggling to meet the premiums they pay for the use of music. And the U.S. launch of European music-streaming darling Spotify is being held up by the major labels, which want the service to convert free-listening to subscription. “As an ad-supported service the economics don’t work at all,” a label spokesperson said. “They’re going to have to convince us they can convert enough people from free to paid subscriptions to make it worth our while.”

(While none of the major stories of the past few weeks directly involves non-interactive webcasting, the revenue/cost issues facing Internet radio likely have similar roots. This only emphasizes the need to address the issue of licensing costs.)

Cohen concludes, “It seems that the only way to achieve success for both the services and the rights holders in our current economic situation is through deals based on revenue-sharing that are structured with complete transparency. We need to break the cycle of mistrust, be bold, share the risk, share the reward.”