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« The KamaSutra of Music Marketing | Main | Do most fans really want anything from you other than your music? »
Thursday
Nov132008

Can File Sharing Be Monetized By Advertising?

Ideas about how to monetize P2P activity – as opposed to trying to sue it and its users out of existence – have been discussed for years, and several companies have attempted or are attempting to do it. Thus far, the results haven’t been all that encouraging. Within the past month, BitTorrent, Inc. announced that it is abandoning its paid P2P offering, and P2P search advertising service SkyRider pulled the plug on its business. There were certainly flaws in the way that both of these companies executed their services, but nevertheless it got me thinking: Can file-sharing be monetized effectively over the long-term? Or is it a strategy that, while appealing in theory, is destined to fall short in practice?

With millions of Internet users engaging in file sharing (as I type, BitTorrent network The Pirate Bay has 23 million users alone), and no evidence yet that label-sanctioned free download services like SpiralFrog and We7 will entice a significant number of music consumers away from the unsanctioned P2P networks, finding a way to generate real revenue from P2P activity represents a huge opportunity for artists, labels, and entrepreneurs.

A P2P monetization model that has gained momentum recently is compulsory music subscriptions administered by ISPs. The idea here is that all Internet users pay a monthly fee – some would call it a tax – to their ISP which entitles them to legally download and share as much music as they want. While I understand the appeal of this model, I’m not convinced that requiring everyone to pay for the P2P sharing of some is the best solution. I would prefer to see a system where only those who actually engage in file sharing are affected.

One such alternative approach being pursued by companies like Grooveshark combines P2P music discovery with a digital sales platform. Grooveshark users upload music they own and can search and stream songs uploaded by other users for free. If users want to download a song, they can purchase a DRM-free mp3 for 99 cents, with a portion of that revenue going to the label as well as the user(s) who uploaded the song. I believe this model has a lot of potential to drive music discovery and sales, but I worry that the per-download fees could be a turn-off for many users.

Some other monetization models that revolve around advertising are being introduced and, on the surface at least, seem promising. For example, a company called Brand Asset Digital allows content owners to seed P2P networks with content, which they can use to drive downloaders to digital stores or other online destinations. The company also recently launched a product called P2PWords, which is similar to Google AdWords: Advertisers can buy keywords, and whenever a user searches those keywords on a P2P network, links to sponsored content appear in the search results. And then there are companies like Auditude, which recently announced a partnership with MySpace and MTV under which Auditude’s platform will automatically identify any MTV-owned videos uploaded by MySpace users, display advertising against those videos, and split the revenue with MTV. It’s not hard to imagine something similar being developed for music on P2P networks.

However, it remains to be seen whether P2P advertising could generate sufficient revenue to keep advertisers, labels, and artists happy and interested. P2P networks may have millions of users, but a large audience does not necessarily translate into large advertising dollars. Social networking sites like MySpace have struggled to capitalize on advertising, and it’s unclear how advertisers would fair in a P2P environment. Would P2P users be receptive to advertisements and buy links, or would they ignore them? Would advertising and sponsored content be too disruptive to the user experience, and ultimately just drive users to seek out alternative, ad-free P2P networks? Is the P2P environment conducive at all to viewing/watching/listening to ads?

What do you think? Is some sort of advertising-based P2P monetization model feasible? Or is it a pipe dream? I’m eager to hear your thoughts.

Reader Comments (8)

I don't think P2P monetized through advertising will work. The CPMs are way too low - translate: you need a ton of impressions to pay the fees the labels and rightsholders want. If ad-supported P2P cannibalizes something else that delivers more revenue, they are going to kill it and continue to pursue legal options to crimp illegal sharing.

There's something bigger that all these models fail to realize. That is: there are two economies, the major label economy and the everyone-else economy. The two economies could not be further apart when it comes to objectives/needs and the ability to accomplish their objectives.

If you are an artist and you have joined the signed-to-a-label-now-on-radio economy, you probably worry more about making money than about getting heard (if you are on the radio and have a large promotion machine behind you).

If you are an artist and you are stuck in the everyone-else economy, you are probably focused on getting heard and getting found. If you are in this "majority" economy the PENNIES that you MAY make from monetized P2P will not stop you from doing whatever it takes to be found and heard, even if that spells giving away songs for FREE. In fact, when you are in this economy you have to give songs away for free to move forward; there's no ifs, ands, or buts about the need to do this. The admission price to exposure is...free music.

So on the left these models get pinched by the labels, and on the right they get pinched by the drive to obtain exposure (equates to free). With this stress on both ends, I am having trouble imagining it all working..

November 15 | Registered CommenterBruce Warila

Bruce W. - you are right on about the two economies. When talking about the future of the music business, we need to be very careful to delineate.

Ways to monetize on the Internet in general are still expanding. There are some great ideas (I like Spiralfrog but I have a mac so i can't use it), but really it comes down to competition. When you are competing with filesharing sites that are BOTH free and easy to use, it is an extremely uphill battle to gain momentum. And the RIAA scare tactics are just making it worse (let's hope they eventually go the way of media defender).

One interesting point is that it seems the vast majority of people enjoy having one destination to get their music at. Snocap bombed on myspace, iTunes is still king because it is just there, when kid's ask where to find music iTunes is used by all their friends and takes 10 minutes to setup. So while people were willing to get CDs anywhere from the local store, Best Buy, Wal-Mart, Target, etc, for the Internet they really all want the same site. Which really, I think may run down to quality assurance, and unconscious fear of going to an unknown website and accidentally giving away your info. Hopefully I am wrong, and something else will pick up (Amazon seems to do well but doesn't count exactly because of it's similarities in size to iTunes).

November 16 | Unregistered CommenterJim

I'm going to toss my hat in the pessimists on this one, and say that monetizing P2P does not sound like a great strategy for generating cash. That said, its possible that a company could come up with an innovative way to bundle a pay-for-P2P feature with something ELSE that makes it worthwhile.

Off the top of my head, lets say facebook does it. They could charge a cheap subscription fee to anyone who wants to sign on to their hypothetical music-sharing program, and add a feature that allows all participating users to transfer files P2P. People come for the original goodies of facebook, they stay for the music. But I would be skeptical about anyone trying to float a p2p money scheme as their primary strategy.

November 16 | Unregistered CommenterJustin

Seems to be working in the porn industry...and that's what i watch for this stuff, since they're usually 4-5 years ahead and what everybody else is doing technology wise.

Watch the porn industry...not the porn. Don't get the two confused, if you decide to take a look. ;)

AVN.com has some good stuff on this, for anybody interested.

The main issue is that porn sells porn...or maybe related stuff like sex toys. Music could do something similar with "lifestyle" stuff, but in my opinion, porn is like selling crack-- you just offer it and it sells itself. Selling music requires a bit more skill.

December 6 | Unregistered CommenterDavid Hooper

I don't think "monetizing P2P" makes much sense, directly. Artists and musicians monetizing it today are the ones taking advantage of the free promotion to grow their market for other scarce goods associated with digital music (e.g. concert tickets, access to the musician, creation of new content, physical products, etc...).

December 12 | Unregistered CommenterBlaise Alleyne

tax dollars pay for services that most people will never use, such as libraries, aid to foreigners, roads that never get used. just because some downloaders will not take music and movies, doesn't diminish the appropriateness of having a "flat fee" approach to compensate content providers. using the internet is a "priviledge" not a "right". content providers, especially recording artists are not being treated fairly. their compensation is very low compared to what they are giving back to consumers.

December 25 | Unregistered CommenterDennis

P2P is here to stay one way or another. Content (Movies, music, ) is a game changer in advertising, there are some very clever campaigns and insights being done in the world at the moment. Like nine inch nails Viral campaign or anti campaign.

So it is up to the artists or music, movie and advertising companies to come up with clever business, revenue models.

So that they can use the content as the movie to pass along other item. Ferrari’s merchandising business is a huge money spinner. We develop a software package Wipspace and the way we get around sharing is we give away a certain element for anyone to use. It is run as a SAAS (Software as a service) whereby it runs off a server so it cannot be downloaded and shared, no download. (Well let’s hope not). So why can’t the music industry come up with a SAAS model, giving away some content and charging for a deeper, richer experience.

May 28 | Unregistered CommenterGuy Duncan

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