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Commentary: Ad-supported Net music delivery connects eyes, ears

Free content is more attractive than any payment plan, so demand for advertising-supported music will increase faster than demand for subscription services.

    By Sujata Ramnarayan, Dataquest Analyst

    Online music distribution is so new that no one is yet sure what payment systems will be popular with listeners.

    So far, the only evidence is that paying per song does not seem to work well. MP3.com has had trouble selling songs on a pay-per-use basis, and it is regrouping to try a monthly subscription service, which the Web music company already offers for classical music. The reasons have more to do with the difficulties of micropayments than with the model itself.

    Advertising-supported music

    See news story:
    Free music downloads could come with a price: advertising
    has been successful on the radio for more than half a century, so the model is clearly proven. For the music provider, almost no drawbacks exist--as long as sponsors are willing to pay. The ability to offer free music is a powerful competitive advantage against providers that require payment from listeners, no matter what the payment model is.

    The value of an ad-supported approach is that the revenues do not depend on the listener's active participation. The pulling power of the ads can be enhanced by targeting them, using feedback from the listener's own behavior patterns. The ads are also persistent: EverAd's content is downloaded with the music, so it appears whenever the music is played, even if the listener is offline.

    The drawback of an ad-supported approach is that no one knows whether the ads will be effective. Although they work on the radio, they may not work on the screen since listeners are not necessarily looking at the computer while they listen to music.

    If many listeners, for example, read books while they play the downloaded music, the value to sponsors will be diminished. Ultimately, sponsors will demand a reliable tracking mechanism to determine the level of attention that their messages actually receive.

    The ads are certainly unobtrusive. One of EverAd's partners, PlayJ.com, is typical. The software puts up a tiny window that a person can move around on the screen, which makes it easy to ignore. The challenge for advertisers is one that they always face: making their messages colorful and dynamic enough to attract attention from the most jaded and distracted viewers.

    Of course, if the music were played on an appliance other than a PC, the online ads might not even appear, but so far EverAd is a Windows-only product.

    Since free content is always more attractive than any possible payment plan, the demand for advertising-supported music will certainly increase faster than the demand for subscription services, at least in the short term. If sponsors can be satisfied that their messages are reaching the eyes attached to those ears, it will become the dominant mode of music distribution on the Internet, combined with e-commerce purchasing of physical CDs.

    Each model has certain advantages to either the consumer or the supplier: An advertising-based model is free to the consumer; single purchases increase convenience for the consumer; and a subscription model lets the vendor lock in the consumer.

    However, each model also needs to be weighed in terms of its technical and psychological barriers. Technical barriers include a scarcity of persistent broadband connections and the music's lack of portability beyond the PC. The primary psychological barrier is a reluctance to make micropayments for individual songs.

    That makes it necessary to combine an advertising-based model with subscription services augmented by a mechanism for making purchases when desired. Although the models will evolve with broadband and networking technology penetration in the homes, an ad-based model in combination with e-commerce will hold sway in the short term.

    (For related commentary on how to maximize the impact of ad banners, see TechRepublic.com--free registration required.)

    Entire contents, Copyright © 2000 Gartner Group, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.