Will ad-supported music save the record industry?

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Divvycast, LLC, is using ad-supported track distribution on the peer-to-peer networks to solve the pressing problems facing the record industry. The record industry, battered by the troubles of the last few years, is responding, bringing revenues to artists and giving advertisers access to highly attractive target markets.

a growing recognition among some record executives and performers that the people who are downloading illegally are frequently huge music fans and that marketing to them may be more desirable in the long run than suing or otherwise harassing them.

In response to the ever-changing music market, Divvycast, LLC, is using ad-supported track distribution on the peer-to-peer networks to solve the pressing problems facing the record industry.

The imminent demise of the record industry has been predicted since Napster made its appearance in 1999. There's good reason for worry. Tower Records, the cornerstone of brick and mortar music distribution, closed its doors in 2006. Sales drop every year. High profile bands are opting out of major label contracts and attempt, with varying degrees of success, to chart their own course.

Yet music consumption is at an all time high. Free downloads on the peer-to-peer (P2P) networks are 70% of all traffic on the internet. Sales at iTunes turned Apple into a bright star on the tech horizon. It seems like everybody is listening to music all the time. How can the record industry take advantage of the high level of music consumption?

iTunes and other online download sales outlets help, but they don't replace record store sales. Copyright owners are realizing that one of the answers is the ad-support model that made commercial TV successful. Lenore Skenazy put it succinctly in Advertising Age: "The music industry is in a shambles, so the money has to come from someplace else: advertising."

This is not new. Nearly two years ago the Wall Street Journal, in an article titled "Record Labels Turn Piracy into a Marketing Opportunity", described early attempts by the record industry to monetize P2P downloads. Rapper Jay-Z put together a promotion with Coca-Cola that allowed an 8 minute clip of his June, 2006 Radio City Music Hall live concert to go out over the P2P networks. Coke did a similar promotion with DefJam artist Ne-Yo, with 3.5 million downloads over 6 weeks.

According to the article, Katie Bayne, senior vice president of Coca-Cola North America, said the promotion "has so far exceeded our goals that you should look for us to do more." The article also stated that, even in 2006, there was "a growing recognition among some record executives and performers that the people who are downloading illegally are frequently huge music fans and that marketing to them may be more desirable in the long run than suing or otherwise harassing them."

Current technology offers myriad ways to market to music fans. Individual tracks or entire albums can be packaged in microsites with banner ads, audio ads, and rich media ads. These microsites include embeddable widgets that can be put on fans' MySpace, Facebook, and other social networking sites. The microsites include tour dates, ways to buy tracks and entire albums, and concert tickets.

Copyright holders have been slow to jump on this opportunity, but as the opportunity presented by advertising revenues becomes apparent, they are falling into line. Tom Jeffries, CEO of Divvycast, LLC, one of the key companies in the emerging field of ad-supported music, commented that "a year ago we were signing contracts with lots of independent artists, but the major labels and major artists were reluctant even to talk to us. Recently a major artist management firm in LA emailed me saying that they could offer Divvycast nearly any artist we, or one of our advertisers, were interested in. That's a huge change and makes the size of this opportunity clear. With top-tier advertisers and top-tier musicians there is no limit to where this can go."

Advertisers are hungry for the targeted exposure they get from music consumers. Every artist has a specific fan base with clear demographics, whether they appeal to younger listeners downloading from the P2P network or older, more affluent fans of well-established artists. It has taken several years, but artists and record labels have realized that they are not going to make enough money selling CDs to keep the industry thriving, and advertising income from so-called "free" music can be much more than just a replacement for revenues from Tower Records. Record labels and artists that don't get the message won't get the money.

The woes of the record industry have been deep and well publicized, and blame has been laid from the beginning on free downloads. The irony is that those very free downloads, with the addition of advertisements, may prove to be the solution.

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Tom Jeffries
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