A proposal on monetizing peer-to-peer

We all know unauthorized downloads far outstrip legal downloads every year. Therefore, how to monetize unauthorized peer-to-peer downloads is one of the $64,000 questions facing the music industry right now. FMC intern Jeremy Sheeler put together this look at some attempts to take a crack at the problem:

Is Ad-Supported Music the future of digital music distribution? Jupiter Analyst Mark Mulligan seems to think so, as he has outlined in his recent report The Future of Digital Music: Fighting Free with Free. According to Big Champagne, a company that tracks activity on unlicensed Peer-to-Peer Networks, downloads on these networks are surpassing a billion a month. So the dilemma is: How do you go about monetizing these downloads to compensate the copyright holders of the songs? Because, as Vice President of Sales and Marketing at Big Champagne, Joe Fleisher, has said, "Competing with free means you have lost." Additionally, it is not only free that they are competing with but also the availability of live tracks, rarities, out-of-print, demos and other things that aren’t even available for sale but are available for download on the Peer-to-Peer Networks.

There have been a lot of companies that have popped up recently that all have different ideas of how to create advertising supported digital music distribution including Spiralfrog, Revver and Pandora. Intent Media Works is one that seeds existing peer-to-peer networks with copies of participating label’s songs that contain advertising to help pay for the transaction. Qtrax is another company that will be offering content from all four major labels as well as many independent labels using a heavily restricted, ad-based system that allows the downloader five listens and then an offer to buy the song. The newest company to try a model of ad-supported music is a Peter Gabriel backed company called WE7. It will not be peer-to-peer, but rather music that’s downloadable from their website, although they are planning on creating a community aspect that they hope will rival peer-to-peer communities.

Each company has come up with its own way of embedding the advertisements into the downloads. Some plan to offer a range of ad formats including sponsorships, videos and display units. WE7 plans on putting a ten-second advertisement at the beginning of each song that after a certain number of listens or a certain time period (they haven’t specified which yet), you can then download an advertisement free track. It will be a specific advertisement that, theoretically, should appeal to you based on your listening habits and some demographic information that they collect about you.

This distribution model may work for major labels that engage a more casual music listener that is more interested in singles than full albums and is used to listening to advertisements when they hear the songs on the radio anyway. But for an independent artist, this may not be the way that they want to distribute their music to their fans because they may not want to be associated with advertisers if they have no control over with whom they get associated. If an artist or label can have pre-approval over the advertiser, then they may not have a problem being supported by their advertising money. But an independent artist, generally speaking, is independent because they want control over their music and their image, which has a lot to do with who they associate themselves with.

So far it does not seem that any of these companies have found a viable way to make this amalgam of music and advertising work correctly, but it is definitely a necessary process. The entire ad-supported model may not even work, but at least companies are starting to think outside of the box. New and innovative ways of digital distribution are needed to try and attract people away from unlicensed music that does not compensate the copyright owner. As Terry McBride, the chief executive of the Nettwerk Music Group, a label and artist management company that works with Intent Media Works, has said companies have to “figure out how they’re consuming music, market to that and monetize their behavior”.