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…
Spotify recently closed a new $100 million in funding, which brings their total funding to $288 million. Mary Meeker is a partner in the firm Kleiner Perkins Caulfield and Byer, which has lead the last two rounds of $100 million each. Meeker is widely respected for her ability to see and report trends in technology, last year she predicted that mobile and audio were “the next big thing.” Apparently she thinks Spotify is as well.
Another interesting thing about this recent investment is that Coca-cola is a player as well, owning about ten percent of that latest $100 million. Last spring we began to hear of Coke’s relationship with Spotify, which was described as a marketing partnership, in which Spotify would enable Coke’s music platform, and Coke would feature Spotify on its Facebook page and advertising. It was announced then that there would be a cash investment, so now the details on that are emerging.
The value of a global brand like Coke is huge to an upstart like Spotify. Spotify is in 17 countries, and has 15 million users, so they are a long way from global. But their goal is to have everyone use their on-demand service like a song library, where you can listen to whatever you want to hear. Coke’s a brand that has associated itself with the idea of music as the universal language for a long time, which is why I like the relationship with Spotify. If you’ve been around awhile like me then you remember this ad: