Following this week’s Qtrax fiasco, ad-supported music download services are very much in the spotlight. UK-based We7, backed by Peter Gabriel, is one such offering, enabling users to download free MP3s that have a short (and targeted) audio advert embedded at the start of each track. The ads then auto-expire after four weeks of listening, allowing users to re-download the same tracks ad-free.
Earlier today I caught up with We7 CEO Steve Purdham (over IM) to find out more about the company’s mission, and to discuss issues such as DRM, resistance by the major labels, new business models and more.
What is the problem that We7 is trying to solve? Tell us a bit about your model and why you started the company.
The problem is simple: if music is free who pays the artist? Our model tries to create a relationship between fan, band and advertiser. Fans gets free music, advertiser gets listened to, and bands (and We7) get paid.
[I] got involved when I met the original founders John Taysom and Gareth Reakes, initially just as an investor but the idea is irrationally seductive so I also decided to run and build the business as well as invest.
Your ad-supported model is different to others, whereby a 10 second audio advert is actually spliced in at the beginning of each track downloaded, rather than having to consume ads visually while on the site. Over the course of an album, that’s an ad in between every track, which seems like more interruption than on commercial radio. What feedback from users are you getting regarding the trade off between free music and the need to consume ads?
Actually, really good feedback. We have been very upfront about our model and as one of the blogs highlighted you actually get much less ads in an hour of music than you do with radio, as although there is one each track, they are very short.
In my testing, although ten seconds sounds like a long time, the ads actually felt quite short. However, how do you avoid too much repetition? Hearing the same ad over an over might put some people off?
Yes, that’s a problem that gets addressed with scale. In the beginning, one ad, one track, one consumer [results in] very little choice. Once we get scale then targeting kicks in and we can deliver different messages to the same person based upon music tempo and genre and with a deep ad catalog to keep it fresh. Actually, if the ad is humorous then 17-20s can appear short.
Of course, We7 also gives users a way of getting rid of the advertising: either a four week wait after downloading, or the option to buy tracks ad-free. How is that working out?
Actually they can buy the track at the beginning or each month without doing anything else. They can [also] re-download up to 20 tracks they have had for 4 weeks without the ads, and they can get more with a small payment or do something else i.e. fill in a survey. We are, however, going to introduce a download manager that integrates into iTunes and manages the ads so that we can change or remove the ads after a numbers of plays.
Making it more automated?
Correct. As always there is a quid pro quo for installing the download manager: we manage the ads but we [also] get back the numbers of plays anonymously.
Your music catalog has grown from a handful of tracks to 80,000? Does that include deals with any of the major four: EMI, Sony BMG, UMG or Warner? What resistance have you met from record companies?
No deals with the majors, yet. They are slowly starting to understand the new models. They are up to ad funded streaming but not downloads. We have agreements with mostly independents and catalog owners such as Sanctuary, V2, Big Fish, MTunes, One Media Publishing and lots of new bands. Only 80k are actually uploaded at the moment [but] we have some great stuff coming through in the coming weeks.
From those 80k, we’ve seen 1m tracks downloaded in 6 months and more excitingly expect the next 1m to be downloaded in only 6-8 weeks.
Do you have any insight to share on why the majors are resistant to ad-supported downloads?
It’s simple. They are worried that if they leave the iTunes model, the revenues they get will be diminished. So out of 79p they get, say, 46p and they are worried that ad [supported models] will net a lot less.
However, there is a realisation that in a world where for every track sold by iTunes… 10 tracks are downloaded illegally with no payment, so the real track revenue is 4.6p. Ad funded models need to show they are additive on the whole or scale to make the total cash available higher than before.
Unlike other ad-supported models, We7 music is downloaded DRM-free and therefore can playback on virtually any device, including iPods. This seems like a necessary feature for any music download service to be a success. How important a consideration was this?
This was and is significant and given that we made this decision at the beginning, it has created upside and downsides. The rational was people were downloading music illegally in volume in MP3 format exactly because they wanted to play it on iPods, phones, PCs etc. To get them to move from that premise you had to reflect what they wanted.
To us two people really matter – the band and the fan. The upside is great acceptance from the fan but the downside is the majors had to go through the battle of DRM vs Non-DRM. I have been in the computer industry for too long it was obvious to me the outcome but I have had the battle scars of history. The music world needed to go through the learning curve, they have got there (almost).
Is the DRM-free requirement holding back the expansion of We7′s catalogue?
It’s a balance, giving the fan what they want is more critical and eventually we will get the other music. There are some good people in the majors but the politics of history has had to be allowed to unwind so they can act on the opportunity.
Presumably using an open format like MP3 also makes it harder to track ad impressions too, right?
You betcha. The good thing about DRM was the ability to manipulate the content as components which can be turned on/off and also tracked and monitored. Sadly that baby was thrown out with the bath water as the industry fought the wrong battle of banning sharing. That’s what our [upcoming] download manger does though, it adds back in some of the good bits of DRM while letting people have the format they want.
You just got a significant cash injection through your Series ‘A’ funding ($6 million). Moving forward, what will the money be spent on?
The money well primarily four things: people, infrastructure, music and GROWTH.
So are you already profitable? Or are you losing money on each track you give away?
A startup profitable!!! . No not yet. We are ‘investing’ money on each track. We had to break the catch 22: advertisers want fans, fans want music, artists want paying. No music, no fans, means no advertisers. So we brought on music, fans have followed, and we are scaling it up. Advertisers are coming on board but a bit behind the curve until we get scale. 100,000 registered users is a great start but small for most brands.
Digital music pioneer, Peter Gabriel, is one of your main investors. What exactly is his role?
Well like me, he started as an investor in the idea but again like me he gets involved. I am totally immersed now but Peter is involved a lot more than most people would expect. We arm wrestled for many hours over the name, we meet regularly and he has some great ideas and of course he is the best ambassador any business can have. He is an outstanding partner in making things happen but at the end of the day, Gareth Reakes, the original founder (our CTO) and I have to do the operational things and take blame and praise based on what we deliver.
How do you think ad-supported downloads will fare against other models being pushed (or likely to be), such as subscriptions or a music tax? Is it one model wins or is there room for lots?
No single model will exist in the future. It’s now about multiple models that coexist and scale. Buy, Subscribe, Free will all exist in different ways – many models will come and go, but the ones that are allowed to flourish will produce scale, which will produce significant growth for the industry.
OK finally… Qtrax, too good to be true?
Well let’s just say the reports seem to suggest so, which is a shame as I want to see more ad models appear and then the winners are the ones that execute well. The strange situation with Qtrax, and Spiralfrog last year, do nothing for the cause. There are many big questions that are hanging over Qtrax which needn’t have been there but I hope they don’t destroy the opportunity for the rest of us.
This is one reason we are taking baby steps and involving our fans and building at a pace which is achievable, at the end of the day its has to be about the music. We are just a delivery mechanism, we believe that we have a great chance to make it happen but the seas are still stormy for everyone.
Thanks Steve for taking the time out to talk to last100!