CNET: What's The Real Cost Of Free Music?

Can Ad-supported Music Sites Survive?

SPIRALFROG met its end just days ago, and already, operators of other ad-supported music services are rushing to put distance between their business models and that of the doomed site, writes GREG SANDOVAL for CNET.COM.

"The concept was good, but the management, board (not all), and execution were poor," wrote ROBIN KENT, the former CEO of SPIRALFROG who went to work as an adviser to QTRAX, one of SPIRALFROG's competitors. "It was obvious to anyone...it wouldn't survive."

Some label executives are questioning the value of offering the public music free of charge. For decades, a large number of people have believed that giving away music, such as playing songs on broadcast radio or handing out CDs at concerts, promoted music and helped boost sales. But now some in the music industry suspect that instead of promoting sales, ad-supported services are replacing them.

According to information supplied to CNET NEWS by a music executive, who requested anonymity, a recent study showed that music purchases made by people who listen to three free-music sources fell 44% from the first quarter of 2005 to the third quarter of 2008. Over the same period, the purchases made by people who listened to four sources declined 49%.

MICHAEL ROBERTSON, a well-known SILICON VALLEY entrepreneur, founder of MP3TUNES.COM, and record industry adversary, has long been critical of ad-supported plays. He says the economics just don't work because the sites must pay penny-per-play royalty rates to the major labels, and they just can't deliver enough ads at a high-enough CPM to cover the royalty fees, much less than the other costs of running a business.

He says the sites can't generate a high CPM because advertisers know that people often listen to the free music that YOUTUBE, IMEEM, and PANDORA offer without paying attention to the ads. "People's ears may be engaged, but it doesn't mean their eyes are."

« see more Net News