The case for (and against) ad funded downloads

Ad funded downloads is the holy grail of digital music. Well, not really, iTunes is the holy grail of digital music, and Apple is making tons of cash off of it.

Ad funded downloads is the idea that people can download music for free and artists still get paid. How do the artists still get paid? Because brands and businesses will want to pay to put advertising on the download pages, and that payment will become revenue for the artist.

Simple enough. An artist puts up their music to download for free. Millions of people will download the music. Brands will pay for these millions of impressions, which becomes revenue for the artist.

People want music. Artist want money. Brands want people to sell their stuff to.

In theory this looks like a no-brainer.

But this is why I think it won’t work.

It’s like having a band play a show for free, people won’t have to buy tickets for the show. The only catch is, there will be brands there, that could manifest in the form of: the stage will be full of advertisements, or you would have to like a brand on Facebook or tweet something for the brand to watch the show, or you would have an ad running in the backdrop of the band, whatever.

The key is you would have to suffer intrusion from a brand. I can’t imagine that would be an enjoyable show. Also it would be hard to find a decent band willing to compromise their artistic integrity in exchange for cash. Or maybe I think too highly of artists.

At its current form, people have a choice of:

• buying music they like from the available outlets in whatever form they want, for digital they can go to itunes or amazon or google music or whatever.
• or if they know how to do it just go to thepiratebay and torrent it for free, no hassle

So there are these 2 extremes. Pay or pirate. Ad funded downloads would appear to appeal to the middle ground, people who dont have money to pay, but don’t want to (or don’t know how to) pirate.

I wonder how big this middle ground is, is it even worth the effort.

The only way I could see this working is if the brand experience is non-intrusive, meaning, the most you could do is sell impressions. Requiring users to click, like, tweet would be a hassle. Just have the brand banner above the link, or you could go the way of filesharing sites where the download link takes 60 seconds to load and in that time display some banner ads. That maybe could work.

Let’s just imagine what it would need to make an ad-funded download site work:

• The site would require a vast sales and marketing department to get brands and businesses on board. They would need an A&R department to get artists on board.
• They would need to be able to match brands to bands so the impressions would hit the brands targeted demographic (not that hard actually).
• The downloads would have to massive enough in order to cover the costs of such an operation while being able to pay the bands a fair share, at least what the current market price is which is $1 per song. Any revenue offer to bands lower than that would be a hard sell to artists.

You could argue that this way we could still monetize traffic that otherwise would be lost by pirating, which justifies paying artists lower than the market price of $1 per download. How low could we go?

Let’s say we are starting an ad funded downloads website. The operating costs are $10,000 a month (to maintain sales and A&R teams as well as servers and bandwidth and maintenance and whatever). We are selling the impressions to brands at $10 CPM which is roughly what the current market rate is. Let’s say from all the music we have on the site we have managed to generate 10 million downloads. 10 million downloads at $10 CPM equals 10,000,000*(10/1000) = $100,000 revenue from brands. Now we take out the operating costs of $10,000 because bills have to be paid right? leaving about $90,000 to share to the artists. At $90,000 that means that we are valuing each download $0.009 cents, less than a penny. Good luck selling that to artists.

Based on this model, if we tweak the numbers, there could be a way we could tweak the CPM cost and artist revenue share so the numbers would be more fair for all parties, but in order for it to work the CPM would have to be an absurd number. The CPM would have to be $1000 for us to be able to pay artist $1 per download which is an impossible sell to brands.

So ad funded downloads to me is something that seems like a great idea, but when put in practice it seems like its impossible to make it work. Or am I taking the wrong approach on this?

I guess I ‘ll just think about it some more.