What is the Lifetime Value of a Music Fan?
I had a very interesting meeting with a company who sell Cost Per Engagement advertising. For those unfamiliar with the term, it’s a form of advertising where the advertiser pays for each engagement (or interaction) with an advert. You all know those expandable ads, right? Well, this is similar. You run your mouse over the ad, it plays a video and if you watch the whole thing, it counts as one engagement and the advertiser hands over a fee.
I’ve previously highlighted how the music industry must start understanding these payment models. Thankfully, I recently saw a feature in Music Ally which analysed the future for ad-funded music services (like Spotify, YouTube etc) and for the first time noted that music people were finally talking about CPM (or, “Cost Per Thousand”). It is quite revealing since I don’t think Labels can discuss ad-funded models without a thorough understanding of how advertising models, i.e. CPM, operate. The music labels have obviously struggled with this concept since they habitually ask for a higher CPM than the advertisers are willing to pay. However, the Music Ally article highlighted that Labels were perhaps starting to understand.
However, just as they figure out one model, advertising has moved on to the next – Cost Per Engagement. This means advertisers will only pay when a user interacts with the advert. What does this mean for the music industry? Well, I think two things, depending on which way you look at it.
The first is from an advertising perspective – if I’m paying on a CPE basis, frankly I don’t care how many or which tracks are played; it’s how many people interact with my advert that counts. Music labels can argue with me all day about the value of their content but if no-one who listens is interested in my adverts, then the music has no value to me. Spotify, We7, YouTube, Last.fm etc can deliver millions of impressions but if users don’t engage with my advert then the value of these services is very low. In fact, the only value is mass awareness, which is becoming a very cheap commodity due to the huge oversupply of ad-inventory.
This is going to be a big worry for the streaming services , and therefore the labels. Global advertisers such as Proctor & Gamble are now rumoured to ONLY pay for CPE. As these brands look for guaranteed ROI the ad-funded models will need to accept this and therefore, the pay-per-play model the labels insist upon will become even more redundant.
Now let’s look at CPE from a Record Label perspective. I’ve written about this before. Major global advertisers want to are pay per engagement. That is, a brand such as BMW, Kite Kat, etc, will pay a publisher ONLY if someone watches an advert on their site. And yet, music labels are in the enviable position of being paid by publishers for their videos. I understand this – it’s the value of great content. But, the thing is, the concept of CPE is still valid. When someone watches a music video or listens to a track on Spotify, what is it worth, to both the label and the artist? As we can see, major advertisers believe it’s worth a significant amount. And yet labels appear to lack data on the monetary value of a view or a listen. Should labels start paying marketing companies such as ours on a CPE basis? Maybe 10p for every YouTube view we get or 5p for every Facebook Fan?
To answer this it’s necessary to assign a Lifetime Value to every fan. What is the fan worth over 1 year, 5 year or 10 years? What will they spend on music, merchandise and tickets? How many friends will they introduce? What type of person are they and what synch fees could they attract?
MIDEM, January 25th – “Everything You Need To Know About Digital Advertising”