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Label's Fault: Ad-Supported Music Won't Work

Silicon Alley Insider contributor Lucas Gonze says that ad-supported streaming music services like iMeem and MySpace's soon-to-be-revamped MySpace Music can't possibly survive unless the major record labels, whose content they've licensed, change their pricing demands. Gonze says it's a question of basic economics. The labels are asking for a penny per minute. If the average song lasts 3.5 minutes, and one ad is shown per song at the rate of one penny per stream, you're talking about a CPM of $10.

Not only is this unreasonable, Gonze says, it still doesn't take into account other costs. The hefty royalty fees weigh down the business model to the point where no profit can be eked out. In turn, this would cause investors to bolt from music-related products with their royalty fees and turn instead toward lower-risk royalty-free products.

A $1 CPM is far closer to reality, Gonze says, which means that MySpace, iMeem, et al. need a 10x price reduction to make the business feasible. Of course, the labels don't think this is feasible, either, since they're already lowering prices from what they earn at Apple's iTunes Store. In other words, the ad-supported model simply doesn't scale for the third party provider.

Read the whole story at Silicon Alley Insider »

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