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Last Updated: Monday, 4 June 2007, 22:34 GMT 23:34 UK
Music industry looks for ad answers
By Simon Atkinson
Business reporter, BBC News

Kasabian's Tom Meighan
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A chief executive unveiling a new business venture can normally be counted on to be both enthusiastic and bullish.

But while Michael Bornhausser's enthusiasm is unwavering, when asked whether his company's latest plan will be a success, he is quite blunt.

"In theory it will work," he says. "But really I don't know. We just have to give it a try."

Later this year, his firm SDC will allow mobile phone users in Australia to download music to their handsets for free.

In return customers will be encouraged - though not forced - to click on interactive adverts supposedly targeted specifically at them.

SDC is one of several companies planning to give customers music, digitally - usually on the proviso that they consume some advertising first.

Lingering doubts

Mr Bornhausser's frankness about the project's risks is understandable.

Advertising is well-established on websites that allow users to listen to music and watch video clips online.

If someone is currently listening to music for free, you are going to struggle to make them listen through an advertisement
Shannon Ferguson
Yahoo Music Europe

But using sponsorship to fund music that can be downloaded legally "for keeps" has struggled to take off.

Spiralfrog, a website with similar goals to SDC although a quite different approach, had promised legal free music by the end of 2006.

Its aim was to be "offering young consumers an easy-to-use alternative to pirated music sites".

However, management shake-ups and a missed launch date hardly inspired confidence.

Large doubts linger that such projects can work and - if they do - that they can ever contribute more than a small amount to the music industry.

Spiralfrog had a difficult launch

Indeed, when the UK's music business network Music Tank held a forum last month asking "Can Ad Money Mend The Record Business?" the answer from attendees in the private room of a Soho bar was an overwhelming "No".

Holy grail

In principle, anything which allows advertising revenue to be channelled to the music labels whose songs are made available is going to attract interest - particularly when sales of music on physical formats, notably CDs, are continuing to decline.

True, digital sales from the likes of Apple's iTunes Music Store almost doubled to about $2bn (1bn) during 2006, the International Federation of the Phonographic Industry says.

But the revenue is not growing fast enough to reach the music companies' "holy grail" of offsetting the fall in CD sales.

And with some estimates suggesting that for every legal download, there are 40 illegal ones, it is the trend of people illegally downloading music which proponents of ad-funded music must overcome.

People need to think more about what the customer wants
Steve Purdham
Chief executive

"The battle is definitely against free music," says Shannon Ferguson, managing director of Yahoo Music Europe.

"If someone is currently listening to music for free, you are going to struggle to make them listen through an advertisement.

"Audio adverts added to audio content is not going to work."

Customer focus

Steve Purdham is not so sure.

A former DJ in County Durham, he is the co-founder of internet filtering company Surfcontrol and now chief executive of We7, another firm to offer ad-funded music.

Customers who download songs from its catalogue will have to listen to an advert before they hear to the tune.

But after four weeks they will own the piece of music - advert-free - and will be given the opportunity to upgrade the piece to a higher quality for a "small charge".

More than a billion songs were downloaded from iTunes last year

The ad-funded model is just one way that progress can be made, he says, with there also being a place for subscription-based services where customers pay a fixed rate to download songs.

"Its not an either-or situation," says Mr Purdham, who has gone into the business with former Genesis legend Peter Gabriel.

"If you go down one route only, you're dead.

"People need to think more about what the customer wants."

Payment queries

Even with a service such as the iTunes Music Store, where it costs customers 79p to download a song, margins are tight.

And so the industry is asking: is it really conceivable that a service could generate enough money from advertising alone to give the music away for free?

If someone comes to us with a business model, then we're interested in talking to them
Daniel Ayers
Director of digital sales

"If someone comes to us with a business model, then we're interested in talking to them," insists Daniel Ayers, director of digital sales at SonyBMG in the UK.

But the issue of money - and a lack of certainty about when and how the artists get paid - keeps labels wary about ad-funded free music.

"With something like iTunes, somebody buys a song by one of your artists, then they get a cut of that sale," says Mr Ayers, who has worked with bands including Kasabian and Kings of Leon.

"But if it's not based on price per download or price per artist, how does it work?

"The artists, naturally enough, want paying, but when you talk to companies offering ideas and ask how much the artists will get paid, nobody can tell you."

Sampling tool

Last month, SonyBMG followed in the footsteps of EMI and Warner by agreeing to work with QTrax, a file-sharing program which only provides songs which it has permission to offer.

Advertising will also be brought up alongside the listings, Mr Ayers said.

However, users will be limited in how often they can use the songs, which cannot be burned to a CD or transferred onto an MP3 player.

I'm not sure that this can save the music industry, but it's important to have creative concepts
Michael Bornhausser
Chief executive, SDC

"For us, it makes a great sampling tool, for someone to listen to music and then, hopefully, buy it," Mr Ayers says.

'Creative concepts'

The model being used by Mr Bornhausser's SDC uses technology to track what happens to a song once it is downloaded.

The advert offered will depend on things such as the user's profile and the kind of music they are listening to: perhaps Harley Davidson for somebody in their 40s choosing hard rock - or a make-up firm for a teenage girl downloading the Sugababes.

Payments will be made to artists based on the number of times a song is played.

"Is this the right model?" Mr Bornhausser asks. "The truth is, I don't know, but our approach is just do it, just give it a try. It's important to have creative concepts and do things that work for the consumer."

One thing he is sure of, though, is that SDC - and others like them - have their work cut out.


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