Universal’s Free, Ad-Supported Music Downloads Have Quite The Hill To Climb

Universal Music has announced it will work with a startup called SpiralFrog to make its catalog available for free, via an ad-supported service. This is the kind of radical change the recording industry’s business model needs, so kudos to Universal for being the first to try something different. That said, I’m pretty skeptical of this plan’s success.

Obviously a concern is if it will work commercially. In general, I’m a fairly big supporter of the idea of ad-supported content, but I’m not sure it’s going to work here. It’s really something best suited to goods and services with low marginal costs, something I’m not sure applies to commercial music, with publishing and artist royalties. While a record label can adjust its acceptable level of profit margin, royalty rates don’t exactly change like that, so every additional download carries a level of marginal cost beyond bandwidth. And with the low CPMs and clickthroughs sites like MySpace are reported to command, it’s not clear just how well-suited the ad-supported model is to this content. SpiralFrog and its advertisers will have to work particularly hard to target the ads and make them relevant and compelling to users (just to emphasize: “compelling” does not mean “intrusive and unavoidable”).

However, I think a bigger issue is that this service doesn’t sound like it’s going to be particularly appealing, least of all to users already getting their music from file-sharing networks — the users it’s supposed to lure over to the lawful side of things. And is it at all surprising that much of this will stem from the use of DRM? A SpiralFrog exec says it will work by using a desktop-based downloader for Windows Media files — so no iPods, and more crucially (for MH readers, anyway), few mobile phones. By cutting out the iPod, it’s eliminating its appeal to a huge chunk of today’s portable music market. By limiting its interaction with phones, it’s ensuring it won’t take a piece of the portable music market of the future.

Here’s the thing that the labels don’t seem to understand: this music is already available for free, and if people don’t want to pay for it, they’re going to get it from wherever it’s easiest, and whoever delivers the best user experience. For now, that’s P2P networks and other illegal means (or means of dubious legality like AllofMP3). Getting them to switch isn’t going to happen just because there’s now a legal alternative — it’s got to be better than the P2P services. The promise of malware-free files is a start, but really not much of one. Having to log in to the service once a month to renew the license so the files will continue working (and so you have to watch some more ads) doesn’t help, and makes me wonder what happens should the site shut down, or the company go out of business (guess I really know the answer to that one).

Ditching DRM would make this service significantly more attractive. Part of the reason this is so forward-thinking, for a record label anyway, is that it shows some understanding that it can’t simply wish the file-sharing services away, it’s got to out-compete them. Granted, it sounds like the first iteration of that attempt to compete is fairly flawed, but they’ve got to start somewhere. But make the service more attractive by making it available to as many users as possible: at the very least, get rid of the DRM, and at best, support a wide range of formats, or at least give users tools to convert them. At the end of the day, this content is still going to be available from P2P networks, not to mention the label is giving it away, so adding in the copy-protection is rather pointless. Also, keep in mind that DRM is never uncrackable, and it doesn’t stop piracy, it just frustrates legitimate users.

Now, before you start calling me Cory Doctorow, keep this in mind, too: the use of DRM raises the cost of each song the label gives away (Microsoft don’t license that PlaysForSure goodness for free, you know). When margins are already going to be tight, why commit the double-whammy of increasing costs and limiting your revenues by cutting off a large chunk of the potential audience? Not using DRM means cheaper giveaways, to a bigger audience — including all those mobile users.

[tags]mobile, music, mobile music, vivendi, universal, spiralfrog, p2p, filesharing, legal downloads[/tags]

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