Ad-Supported Music Doesn’t Make Money, Either

myspace music logoWe spend considerable time here chronicling just how badly the newspaper industry is adapting to making money on the web. With so many sites abandoning free, ad-supported content, it seems like they just don’t know what they’re doing.

And maybe they’re not the only ones. In the last few years, we’ve seen the rise of many ad-supported free music sites: SpiralFrog, imeem, MySpace Music, Pandora, to name only a few. And the entire sector is struggling, as CNET reports today: SpiralFrog shut down earlier this year (which is almost funny, since it was a joint venture between the NYT and the Financial Times), imeem is reeling from a financial crisis, Pandora is charging its heaviest users, and MySpace Music underperformed in Q1.

When these sites launched, there seemed like so much promise for growth. So what happened? CNET examines SpiralFrog to determine what went wrong.

Possible factors CNET lists include:

  • Half the inventory—Licensing agreements with only two of the big four music companies
  • Overpaying for inventory—Contractual obligations doubled their bill to some of the music labels, already in the millions (other services negotiated penny (or less)-per-play deals)
  • Lacked features consumers want—Music not downloadable to iPods
  • Huge marketing spend without the payoff of a significant following—However, even a large audience doesn’t automatically generate success, as MySpace Music demonstrates.
  • Insufficient advertising income to cover costs—Advertisers know that music sites may only be running in the background, and not getting the face time other sites offer

Unless you run a business with a huge profit scale, those problems could be enough to shut almost anyone’s doors. (Plus being run by two companies that can’t seem to make the ad-support content model work anyway.)

imeem logoOther problems afflict current services. They fail to sell downloads directly (which is more lucrative than affiliate-type relationships), although imeem is going to test that service with Warner Music. But they face an uphill battle against the entrenched favorites, the iTunes store and Amazon MP3.

However, investors are still willing to give the sector another shot, as several companies are still raising capital.

What do you think? Is ad-supported, free content going the way of the dinosaurs everywhere, or are music and news special high-cost exceptions?

  • http://www.terryhoward.net/ Terry Howard

    Agree, display ads on a music player site that gets hidden in background is an obvious loser, so why haven’t they focused on ads between blocks of songs like terrestrial radio? It’s rare to hear in internet radio, and I think it’s because most of these companies take the handful of loud people who say they hate ads in their music to be the consensus. It’s a model that was acceptable for free music via your car stereo, why not make that your focus for free music via your computer?
    .-= Terry Howard´s last blog ..Formula For Success =-.

  • John

    I agree with everything you and CNET said on the topic, but I think one of the largest problems spiral frog had was who it had invest with it. 3V or Stagg seem to have a habit of doing this type of stuff. They are being sued for something like 150,000,000 by a company Smart SMS http://www.courthousenews.com/2009/07/02… They seem put money in and try to take over but while doing so destroy the company and any hope of actually making money. Strange????? If anyone is going to get into this space they will need people with deep pockets and the willingness to let the experts run the show or better yet be experts themselves. Spiral frog became the Spiral of death the minute they took hedge fund money………