New York, NY (December 27, 2008) - From The Coolfer.  This time, he’s asking whether playlist sites can be profitable for labels.  The short answer here is no.  Based off an from the L.A. Times, son breaks down real language style how advertising revenue and streaming song options are proving to be ineffective in making up lost dollars:

…There are a couple problems with those theories. First, ad revenue is a poor way to monetize demand for music. Selling music — which the Times considers an archaic way to run a business — results in more money and more money sooner. Consider a song sold at iTunes. The label collects about 70 cents (ignoring publishing and distribution). A typical on-demand streaming payout would be, realistically, around half a cent per stream. That means the song must be streamed 140 times to generate the revenue of a single track purchase. A sale results in an immediate 70 cents while streaming spreads out that revenue over time (the time value of money dictates that money now is better than money later). The sale of an entire album results in revenue equivalent to 1,400 streams. The buyer would have to spend about 5,600 minutes — over 93 hours — listening to music on a playlist site to generate the same revenue generated from the purchase of a digital album. It’s no wonder labels would rather attempt to spur sales rather than collect fractions of pennies. Nor is it any wonder that when labels do license music to the likes of Project Playlist, they strenuously push to maintain a certain minimum value for their product.

Second, there isn’t enough advertising revenue to make ad-supported, on-demand streaming anything close to a “boon” for any of the involved parties. Make no doubt about it, this is a business model in search of an identity, in search of advertisers, in search of customers, in search of believers. We are years — decades is more like it — away from advertising being able to substitute for the tens of billions currently generated by recorded music sales. Today, CPMs are miserable and most services provide poor user experiences. You can’t blame labels for these services’ failure to find a workable business model and the lack of advertiser interest. (You can blame labels for some things. More on that later.)

Third, streaming services do not appear to be spurring a net increase in download sales. Growth in digital revenue is best explained solely by consumers’ adoption of digital music (hardware, applications, etc.). And growth is slowing as the amount of music experienced online explodes. Between P2P, YouTube, blogs and the many sanctioned online services, there is an incredible amount of music being heard online. If there was a net positive effect on sales, it would have been felt by now. Sales would be through the roof. Instead, revenues were far better when consumer choice was weaker, Clear Channel controlled most radio airplay and songs were trapped on CDs. Don’t concentrate just on what sales come from experiencing music on the Internet. Consider what sales are being lost as a result.

Tags: ad, business, coolfer, Editorial, Industry, labels, money, p2p, revenue, sales, streaming

This entry was posted on Saturday, December 27th, 2008 at 1:49 pm and is filed under Artwork, Beef, Culture, Digital, Industry, Music, Technology, mp3, radio. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.