NEW YORK (AdAge.com) -- The market's still unproven, but the ad-supported-music industry just got two more major players knocking on doors looking for marketers' dollars: Last.fm and Qtrax.
CBS acquired streaming-music site Last.fm in May 2007 for $280 million and last week announced its transformation into a free, global on-demand-music service. The site will offer access to music catalogs from the Universal Music Group, Sony/BMG, Warner and EMI, as well as more than 150,000 others, including independent labels. CBS President-CEO Leslie Moonves said the company wants to develop "communities around content," a signal that a TV show, movie or radio personality can be extended online by finding ways to reach like-minded consumers who want to share their interests with others.
Qtrax, meanwhile, wants to build an aggregated audience around another community, the illegal peer-to-peer file-sharing sites, with an ad model designed to give money back to the music industry from the source that has depleted it the most. The site -- formally launched this week at the MIDEM music conference in Cannes -- is the product of Rebel Digital, a company founded by a pair of ad-industry veterans: Lance Ford, former publisher of Maxim magazine, and Robin Kent, former CEO of Universal McCann.
Both Mr. Ford and Mr. Kent are also ex-employees of SpiralFrog, the first major entrant in the Madison Avenue-backed music space, which quietly rolled out last fall. Launched with just over a million songs and compatibility built in for most MP3 players (but not iPods), the site amassed more than 1 million unique visitors this month. Advertisers such as Samsung have since signed on. George Hayes, senior VP-marketing and sales, said the early traffic has already exceeded internal goals. Illegal downloads account for 1.6 billion songs each month. "There's a market there. You only need a piece of that to make an impact," he said. "What we're saying is: 'It's OK to take the same behavior, go around to different sites and find what music you'd be interested in. Just put SpiralFrog into that mix.'"
That's also the platform Last.fm has used to build a global base of 20 million monthly unique visitors in 240 countries, heretofore without any ad support. Co-founder Felix Miller said the site's goal was to enable artists and labels to "earn revenue according to how people listen rather than how they buy." The music creators will be paid based on the number of times a track is played, similar to a cost-per-click model. Martin Siskel, the site's other co-founder, said the company is in talks with Toyota, and it's expected to move to other marketers now that the service has officially launched.
Qtrax has been taking an even more aggressive stance in the marketplace, distributing nearly 200 proposals to potential ad clients. "We've become a kind of small ad agency," Mr. Ford said. Among the marketers onboard for this week's launch include Boost Mobile, Kia Motors, Ford Sync and H&M, few of whom have played in the ad-supported-music market before. Steve Lubomski, advertising director for H&M, said Qtrax coincided with the launch of the company's marketing objectives for its "Designers Against AIDS" campaign featuring musicians such as Rihanna and Good Charlotte. "As Qtrax is targeting young music enthusiasts 13 to 34, we felt this was a perfect way to spread our message to a media-savvy audience," he said.
Cost of cable buy
With the audience still unproven, so is the pricing. A six-month flight on Qtrax at launch was deemed comparable to a cable-network buy, which typically is in the early- to mid-six-figure range. Mr. Ford could not confirm specific details of the initial ad clients' deals but said he hoped to increase the size and length of the deals after determining the site's early performance.
Jeff Marshall, senior VP-digital managing director at Starcom USA, said music sites tend to get as much advertiser consideration as a niche magazine. "They still haven't fully fleshed out great ad opportunities. You can do streaming spots or audio spots like you can on radio, banner ads and those kinds of things ... but unless you're really going after that audience or have a really direct tie-in, you're looking for them to create a unique ad opportunity."
Despite a stable of early ad clients signed on for the untested site, Mr. Kent still was uncertain about what the market's ad model would look like. "I don't think any music sites can make money on impressions alone," he said. "You've got to get out there to make the advertisers notice you. You have to stand for something and be a brand. Ad money is going to follow a brand over a long period of time."
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Contributing: Brian Steinberg
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CORRECTION: An earlier version of this story incorrectly reported that SpiralFrog had no portability model built in for MP3 players, and that Perry Ellis was an advertiser.
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