Fred Wilson, a partner in the investment firm Union Square Ventures, is a music lover and his company is invested in several companies in the streaming audio space including SoundCloud, Turntable.fm, and Targetspot. Wilson has been thinking and talking about monetization of streaming audio services, and his ideas are worth repeating.
In a recent interview, Wilson talked about advertising as a revenue model for streaming services. He sees the radio advertising market, pegged at $17 billion, moving online as listeners transition more and more to listening on smartphones. As that happens, services like Pandora, Rdio and Songza benefit, but so do artists.
In his blog post this morning, Wilson writes about online ad revenue models, and it’s a very interesting post for anyone in the business. He outlines the complexity of the online ad marketplace, and concludes that scale is a very important factor for success in the advertising revenue model. Dollars are limited, and with more and more services going after them, rates are dropping.
Pandora is certainly the service that is best positioned to test this out – they have the scale and are aggressively pursuing an ad revenue model. Each time they gain a dollar in advertising from the general $17 billion radio revenue pool, artists win too, because they get paid for music played by Pandora, but not for music played by broadcast radio. Right? So that means the artists and their labels should want online services which are pursuing ad revenue models to succeed, doesn’t it? Just sayin…