It is no secret that the consumer habits for accessing and consuming music are changing incredibly quickly. In December 2009, radio audience measurement body Rajar revealed that 4.5 million people in the UK regularly use personalised online radio services, an increase of 1.6 million from October 2008. These figures reflect the explosive growth in online music consumption over the past year and highlight the potential gains to be made by advertisers who target the ad-supported music services sector. In this article, we will look at some of the major online music services and then outline key developments and opportunities to be aware of when considering this new market proposition.

The most successful online music service providers (both in terms of subscriber numbers and press coverage) rely at least partly on advertising to help cover the significant operational cost of obtaining the licences necessary to make premium content available to the public. Last.fm is the largest, with over 30 million users. The service, part ad-funded and part subscription funded, differentiates itself with its “scrobbling” system, which recommends songs to users based on their musical taste. Users can also engage with the Last.fm community through the site’s social networking features or create custom radio stations and playlists from the Last.fm music library. Spotify’s service has turned column inches into subscriber numbers, boasting an ad-supported streaming service with over 6 million users, around half of whom are in the UK. It comprises both Spotify Free, with commercial breaks, and Spotify Premium, which is ad-free. And We7, with over 2.5 million users and 4 million tracks available for streaming in the UK is a predominantly ad-based service. Each time a user plays a track the site has four opportunities to show an advertisement targeted at the user.

Until these newer services offered a legitimate alternative to illegal peer to peer file sharing networks, advertisers and brands were understandably cautious about being associated with online music sites. So, how should you make the most of the opportunities now available in the legal online music ecosystem?

The commercial value is obvious; the proliferation of personalised music services allows more effective and targeted advertising. Let’s take an example: If an advertiser wishes to sell trainers endorsed by, say, Jay-Z, they will wish to target fans of Jay-Z (and other similar artists). Personalised services provide a demographic identification service which is invaluable. If a sportswear brand wants to target fans of hip hop or other urban music, they can now do so, and better still, they can engage with them in ways not previously possible with traditional advertising.

Behavioural targeting uses information collected about an individual's online behaviour, such as the pages they have visited or the searches they have made, to select which advertisements to display to that individual. This helps advertisers deliver online advertisements to the users who are most likely to be influenced by them, thereby making campaigns more effective. Because of the individual nature of the information used to identify users, the law and regulations dealing with this kind of advertising are subject to constant review. For example, under European e-privacy law, it will soon be a requirement that a user’s consent is actively obtained before cookies are employed to identify user preferences.

Looking forward, the partnership between artists and brands will continue to strengthen and develop, with artists such as Mariah Carey already breaking new ground. Those who bought her most recent album in certain markets were given a copy of an Elle magazine special edition dedicated to the singer. This collaboration demonstrates the shift from traditional advertising where a celebrity is used to promote a brand; here, it was Elle that effectively promoted the singer.

As artists and brands become more aligned, businesses dedicated to helping brands connect with their consumers through music are prospering. Organisations like VerveLife, a digital music marketing organisation, have established new promotion and distribution channels for thousands of content publishers, such as artists, movie producers, television and game distributors. Companies like Starbucks, Toyota and Burger King have recently sought to reach a particular demographic by focusing on the music that potential consumers listen to.

Along with these emerging models, new legal issues have inevitably arisen. Many of these typically emanate from the existing contractual relationship between artist and recording label. Record labels are increasingly trying to capture the ancillary revenue streams of artists by negotiating 360 record deals which may in turn affect the ability of an artist to engage with a brand. It is also important to be aware of who owns what copyright in music, and what rights need to be cleared.

As the scope and popularity of online entertainment services grows and the level of user-interactivity develops, the online music sphere will continue to provide numerous opportunities for brands and advertisers to connect with music fans in an aspirational way. The new breed of legal online music services offer a dynamic platform for advertisers and brands to reach a targeted and valuable audience.  

This article was previously published in Media & Marketing Online.