NEW YORK As the recorded-music business continues its migration to the digital domain, and relies less on sales of physical music formats, the big companies in the sector are developing strategies that position advertising and branded content as core revenue streams. Up until now, neither area has been very significant to music-industry coffers, analysts and executives said.
The shift in strategy, sources said, should result in a boost of online music-video ad spending in the next three years of between $100 million to $500 million across the music business. Some say the figure may be even higher. By comparison, eMarketer predicts that total online video sales will grow from just over $1 billion this year to $3.1 billion in 2012.
Recent deals illustrate the new push to aggressively develop advertising for online music-video streams.
Just last week, Warner Music Group struck a deal with advertising rep Outrigger to sell ads across every digital platform where WMG videos are distributed.
The arrangement follows a decision by WMG to recapture advertising sales rights from all online sites that distribute its content, including YouTube and dozens of smaller outlets. Instead of licensing the rights to sell ads to others, WMG, through Outrigger, will sell ads itself and give a percentage of the take to the distributors. In the past, the model was the reverse, where exhibitors sold ads and gave WMG a cut.
WMG’s strategy shift comes as other music companies are also embracing different models. Universal and Sony have created Vevo, which is billed as a Hulu-like destination site for their music-video content. Others may also join the venture, sources said, including EMI, which is in talks to do so.
Michael Nash, evp of digital strategy and business development at WMG, explained the decision to take back control of ad sales this way: “While we had some ubiquity in distribution, that was not a good thing in terms of developing the ad market, because you had lots of different sales forces talking to advertisers about content, but there was no premium proposition. Product was being presented with a wide array of quality standards, many falling below our standards.”
PricewaterhouseCoopers expects consumer spending on CDs and other physical music formats to fall by almost half to $11.3 billion between 2008 and 2013. At the same time, digital music sales are expected to nearly double to almost $15 billion, leaving a shortfall of between $3-4 billion.
PwC managing partner Mike Kelley predicts that not only will advertising become a core revenue stream for the music companies, but their redoubled efforts in the space will elevate “pre-roll creativity. There will be a halo effect emanating from what is already seen as highly creative content.”
Content and advertising will also feed off each other in the sector, he said, noting that recording artists like Rihanna endorse numerous brands, which will naturally gravitate to supporting the artist’s videos. The industry will also tap into social networks, where artists like Ashley Tisdale have upwards of 4 million friends and followers on Facebook and Twitter combined.
Branded content is also a format that WMG and other vendors in the space will expand, said Mike Henry, CEO of Outrigger. He cited as an example a just-released piece of branded content from WMG’s Atlantic label featuring Cobra Starship in a behind-the-scenes segment at the MTV Video Music Awards, where the band prepares for the show and the lead singer is shown using his Nokia Twist phone.
“The engagement between the fan and the artist is so high that the audience watches them again and again,” said Henry. “These aren’t just actors but people their fans care about and what they do, and the brands they use.”
Kelley agreed, noting that PwC’s consumer research showed a “very strong propensity for people to buy products that a music artist has endorsed. It registers much higher than any other flavor of celebrity.”