Last week Warner Music CEO Edgar Bronfman Jr questioned the sustainability of the emerging ad-funded music streaming models and called a halt to any further deals.
The deals with WE7, Spotify and MySpace Music will remain in place, for now.
Mr Bronfman said, “Free streaming services are clearly not net positive for the industry and as far as Warner Music is concerned will not be licensed . . . . “.
He went on to suggest that getting all the music you want free, with the option to pay for a few bells and whistles was doomed to fail. Now it seems that pretty much the entire digital industry is warning music companies not to pin their hopes on advertising revenues to plug the shortfall from declining physical sales. The parallel with newspapers and their paid-for-content models is stark.
A breakdown in negotiations between YouTube and music collection agency PRS seems to be behind these calls for a cessation of the ad-funded model. Google has also attracted the music industry's ire after demanding the option to build up advertising income to a sustainable level prior to paying the rights holders fees. Other content distributors echo Google and call for modest revenue deals in what they still see as an emerging market.
The furore is understandable. Radio 1 is known to pay up to £20 a minute for music. In accepting far less from digital content distributors, rights holders' acceptance is unlikely. The gap between falling physical sales and fixed or rising costs isn't being bridged by growth in digital downloads either.
Newspapers face an identical problem. Physical newspaper sales are falling. Yet the costs of news generation remain fixed, or are rising. Advertising revenues are on the decline too and though these may recover it is unlikely that we will see the heights we saw in the noughties. The damage is also exacerbated by the extensive free provision of news content, as much by newspaper websites as the BBC and Google.
News International (owners of The Sun, The Times, Sunday Times and News of the World) who also have interests in satellite broadcasting (BSkyB in the UK and Fox in the USA) seem poised to bundle their newspaper offering into a 'club' with associated 'member rewards' available to their TV customers. The costs of news generation will be reduced as the economies of scale come into play. Cross-selling to their very strong TV base means an instant uplift in subscription revenues, and is also great for retention. Advertising revenues can also be upsold and cross-marketed on the diverse platforms. So, Mr Murdoch's enterprises will start to rival publicly funded broadcasters like the BBC who, though free are prevented from such commercial activity (in the UK at least).
The Guardian and the Telegraph are likely to develop their existing community and 'club' initiatives whilst maintaining a limited free model. The likely focus for both will lie with developing new content and apps for every access model conceivable. This move has already been signalled by the focus on clubs, content, commerce and community that both publishers have outlined.
The paid-for-content model is, in its infancy and likely to face many more hurdles. News International and BSkyB have deep pockets, a history of undercutting competitors and promoting their offerings aggressively. As they will also be most likely to launch first, theirs might the model that sets the terms of the debate going forward. It won't be without challenges. What is certain is that if there is nothing in it for the consumer, publishers will lose out. In our democratising media age, the customer is the king maker.
UPDATE (28/02/2010)
So, the BBC has announced cuts in it's operations and budgets and the Times responds with a carping editorial . . . roll on the battle to be top dog - Both organisations ask you to pay, which offers the best deal?
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