Web Music Category Tunes to Audio, Visual Ad Models

Michael Jackson’s death continues to resonate in the world of online music as fans flock to the Web to purchase his music—and stream tons of it for free, often without many ads.

That surge is seen as a boost to the fast-growing Web music sector (95 million unique users, per comScore). But it has also cast light on the segment’s nascent business model.

On one end of the spectrum is the more established Internet radio format—which is built on radio-like audio ads. At the other end are the growing number of on-demand music sites, such as MySpace and Imeem, which offer users the ability to stream free playlists. That often happens while their eyes are focused on something other than a Web page—a potential problem for businesses built on visual display ads.

“The behavior of listening to music, at the end of the day, is almost entirely audio driven,” said Eric Ronning, co-president, sales of the Internet Radio firm TargetSpot. But many music playlist sites have been hesitant to push audio ads, instead building their ad business around display advertising and sponsorships. Ronning predicts that may change as these businesses evolve. “You can argue that playlists are highly engaging, but they are also an iPod like. I don’t expect an ad so much in that experience…and almost none of that is visual.”

Yet many Web music purveyors see visual ads as better suited for such an interactive medium. For example, when users listen to free CDs on AOL Music, “they may be focused on other things, but there’s lots of natural engagement moments that bring you back to the site,” said Mike Rich, AOL’s senior vp, AOL Entertainment. “For us, context and curation are key to keeping users engaged.”  (AOL Music’s audience surged by 24 percent to 28 million uniques this past May, per comScore).

That’s true even for a seemingly background-relegated music product like the popular Web radio platform Pandora. Its users actively rate songs 7 million times a day in aggregate.
“That’s seven million times people come in contact with your ad,” said chief revenue officer John Trimble. Still, Pandora has introduced audio ads in the past year.

CBS’ Last.fm (which was streaming 14 Michael Jackson tracks per second following his death) is pushing for the medium to become even more multisensory with the recent rollout of Personalized Visual Radio, a format designed to encourage users to listen to and “watch” playlists. This visual approach has created “a new paradigm,” said David Goodman, president of the CBS Interactive Music Group—a paradigm which is suited to rich media ads rather than audio.

Being associated with free Web music is attractive to a lot of brands, said James Kiernan senior vp, group director, MediaVest USA. “Playlists have become currency in social networks,” he said. “Certain advertisers are drawn to that influencer equity.”

That more often means custom sponsorships, like brand-sponsored playlists, rather than radio-like audio ads. Kiernan believes that is the right approach. “This medium needs to be approached a little differently than radio.”

Still, Kiernan doubts whether most of these sites can monetize all of their streaming traffic. In fact, Imeem doesn’t claim to try to. “We don’t worry about that,” said David Wade, imeem’s vp of ad sales. “We are more focused on meeting advertisers objectives.”

Wade contends that free music streaming naturally draws users in to consume more related (and advertising friendly) content. “It’s such a gratifying, immediate experience,” he said.
“People have strong emotional connection to music that.”