by : Business, May 2014

Ad Nauseam

Ad Nauseam

Advertising revenue is quickly becoming critical in the music industry. This is in part because general mobile and tablet advertising income currently exceed desktop ad receipts by a factor of seven (desktop ads on their own are doing exceedingly well, showing an annual 7 per cent growth rate).  As music goes with new devices, so goes the ad money. And, of course, a large part of this money ends up going straight into Google’s coffers.

The ubiquity of ads in the music industry is observed, for instance, in artist branding, music and video synchs, live music, and, generally, all forms of music delivery services. Content creators and their intermediaries, such as the publishers and the record labels, are all affected.

Jay-Z’s new album, Magna Carta Holy Grail, was chaperoned by Samsung, who bought one million copies to give away to users of their Galaxy phone three days before the official release. There were ample opportunities for publicity because, apart from anything else, the storyline was original: an A-list artist putting out an album with a consumer electronics and smartphone company underwriting the launch. Jay-Z’s deal shows too that a regular endorsement, where a brand’s logo might show up at concerts or in print ads, may no longer suffice for many top artists:  they seem to seek as well an active role in the creative process of the product’s marketing campaign.

In fact, music celebrities are now eager to call themselves creative directors and brand ambassadors when there is some basic comfort level with a corporation’s business. Examples are not hard to find. Beyoncé’s has a deal with Pepsi, who is invested in the star’s future; while Beyoncé serves as Pepsi’s brand ambassador, the star will continue to draw on Pepsi to fund her career. Taylor Swift works Diet Coke; she makes money by keeping the product in the public eye and on-demand at concerts or otherwise. Variety Magazine reports that Justin Timberlake works as a creative director for Bud Light. Similarly, Pharrel Williams is active in publicizing Karmaloop TV, Alicia Keys has had a deal with Blackberry, and Lady Gaga is reported to have signed with Polaroid. Now even Bob Dylan makes good income from ads, as his Super Bowl Chrysler commercial shows.

Today’s competitive music streaming sites, moreover, attempt to offer free options to the public by using income from advertising to supplement their current losses. It makes sense. Nearly eight out of ten Internet users aged 16 to 64 have engaged in legitimate digital music activity in the past six months. But even in unauthorized sites, ads are prevalent. The Digital Citizens’ Alliance estimated that in 2013 unlicensed music services earned as much a quarter of a million dollars from ads. The issue is a thorny one and the European Commission is pursuing legislation to stop this.

In the meantime, technology is creating more efficient ways to pinpoint ads accurately. YouTube and Vevo play high definition visual ads that often allow for user interaction. The Google AdSense system, which plants cookies in browsers, is quite sophisticated. An example of the new ad frontier can be found too in the free Internet radio site Hulkshare. As mobile ads will soon be more meaningful economically than radio, magazine, and outdoor billboards combined, the music market is in for a ride.

Still, there are issues. Streaming subscription services are useful because they deliver music rather than ads. In fact, Spotify and Deezer have implied they want to forgo ads altogether. The problem is that many sites, including the radio streaming site Pandora, wrestle with poor margins and need more ad revenue to sustain their growth. This in spite of the expansion in market: the Recording Industry Association of America reports that paid streaming subscribers went up from 3.4 million in 2012 to 6.1 million in 2013, while Spotify puts its global paid subscriptions at 628 million, and US collector Soundexchange distributed more than half a billion dollars in webcasting revenue.

But composition rights holders complain loudly about extremely low royalty rates from streaming services and increasingly advocate more advertising for revenue generation. Pandora, presumably, would be inclined to agree. Changing its business delivery model, however, risks alienating consumers. The same applies to Sirius XM, which is mostly commercial free. SoundCloud, which offers subscriptions to users that wish to stream content, has managed to stay ad-free up until now but it may be only a matter of time before this changes.

In the meantime, song placements in video and TV are becoming an ever-growing source of industry revenue. Nick Drake, for instance, could not find a market for his music easily, or at any rate command the sort of sales that he did after the VW ad in which he appeared. He sold 300,000 albums, by some estimates as much as one hundred times more what he would have done otherwise.

Artists, therefore, are focusing on the good economics of partnership deals. Indeed, the concept of ‘selling out’ to a brand is not the taboo it was once among content creators. Fans themselves seem to not to care much either about tying an act to a corporation or questioning advertising, so why would the artist?  Besides, the ad free album was the cash cow of the business fifteen years ago, too long a time to wait for miracles when one is trying to make a livelihood in music.

By  Athena Butler and Linnéa Lundgren

Endnotes

1, www.artistshousemusic.org/videos/can+musicians+allow+their+music+to+be+used+ to+sell+stuff+without+selling+out

2. www.ifpi.org

3. Music & Copyright Issue: Music To Play A Greater Role In Recorded Music Industry’s Future

4. http://www.businessweek.com/articles/2014-03-13/pandoras-stock-rally-isnt-solving- its-problems

5. http://www.npr.org/blogs/therecord/2012/09/27/161837316/youtube-shares-ad-rev enue -with-musicians-but-does-it-add-up

6. www.variety.com/2013/music/features/endorsement-deals-1200334594

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