From the newspaper on the train to the magazine thrust in your hand as you leave the station, from the targeted ads that accompany your browsing to the ad breaks that punctuate your TV viewing, advertising-supported content is nothing new. Ever since ITV's launch in September 1955, viewers have broadly accepted that in return for watching advertisements, they can view the programmes that follow for nothing.
Now enabled by technology that allows advertisers to target consumers more precisely and efficiently than ever, the concept is spreading. From free, legal music to free mobile phone calls and texts, from online games featuring targeted ads to free movie downloads, a glut of startup companies aim to apply the same principle that led to the ITV of old becoming a "licence to print money".
Shift change
When Google's top team embarked on a low-profile tour to launch its pay-per-click AdWords programme in the UK in 2002, it seemed unlikely that by 2008 it would be on the verge of making more money than ITV. It is a telling example of the shift that advertising experts believe will continue to see money flow from scattergun mass-market campaigns to highly-targeted, contextualised advertising.
That shift is one that Chris Anderson, editor-in-chief of the magazine Wired, who in 2006 turned the concept of The Long Tail into the must-read tome for every harassed media executive, is tapping into with his next book, called simply Free. He argues that the power of "free" will spark an online and business revolution, as the costs of bandwidth and storage became negligible.
"Between digital economics and the wholesale embrace of King Gillette's experiment in price shifting [selling razors at less than cost, to make money on the disposable blades], we are entering an era when free will be seen as the norm, not an anomaly," he said in Wired (tinyurl.com/yntwek). "A generation raised on free is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want - and free, increasingly, is what you're going to get."
If that is a rallying cry to some, it's terrifying for others - specifically those, like record labels, that have relied on us paying for stuff. As Anderson identifies, the next stage is likely to be ad-funded delivery of goods and services. Shaun Gregory, the former director of new media at Telegraph Media Group who last October became UK chief executive of Blyk, a mobile phone network that offers free talktime and texts in return for serving its customers with ads, says it is inevitable.
Aimed at 16- to 24-year-olds, the deal is that in return for supplying extensive profile information and receiving an average of two to three targeted ads per day, users get 217 texts and 43 minutes of talktime a month. Recent trade speculation suggested takeup was disappointing, but Gregory maintains it is well on track to hit its target of 100,000 users by September.
He says media buyers need to change tack and focus on the quality of their interaction with young consumers rather than their traditional volume-based play. More than 100 advertisers have signed up including Adidas, Sony PlayStation, McDonalds and the COI.
Users are recruited by "street teams" that prowl city centres. Gregory says today's "savvy" youth market understands the implicit or explicit "deal" involved in getting something for nothing. Nor does he accept that those kids looking for free calls might not necessarily be those with the most disposable income. "The calls that come into our call centre are not to complain about the advertising, but to ask for more," he says.
Vodafone and Orange are believed to be looking at variations on the theme while Virgin, which has a US service called Sugar Mama that rewards completion of surveys or the rating of ads with free minutes, is said to be looking at bringing something similar to the UK. Gregory said Blyk was creating a new category. "For seven years, people scoffed at pay-per-click [where Google has made billions]. People said it was just a bunch of web geeks," he said.
A recent report from Generator Media highlighted relationships with ad agencies and the ability to deliver a premium audience as two of the six key requirements for ad-funded services. "Generic, untargeted ads that are slapped on top of a free content service are likely to produce poor results," it said. Gregory believes mobiles and music are the most obvious Trojan horses, because younger consumers believe they should cost nothing in any case.
Steve Purdham, chief executive of the Peter Gabriel-backed ad-funded music service We7, is troubled by the word free. "People will either pay for something with money or they will pay for something with their time. Music should never be free. There is too much value in its ability to make the hairs stand up on the back of your neck," he said.
Earlier this week, We7 struck a deal with Sony BMG to launch a new streaming service, and is one of several companies developing various kinds of ad-funded models. The evolution of the internet has opened up a wealth of possibilities. Their development has accelerated in recent months as record labels have woken up to the need to speed the evolution of new business models.
"With CD sales falling at an alarming rate and digital sales failing miserably to offset the decline, they're having to look seriously at alternative revenue models," says Jupiter Research analyst Mark Mulligan.
What track record?
The concept of ad-funded music downloads exploded into the mainstream in January when QTrax, a US service promising unfettered access to any song in return for displaying adverts while they downloaded, announced its launch at a music industry conference in Cannes. The executives behind the service claimed this was the way to capture a slice of the revenue that had been pouring out of the industry at an alarming rate. They would piggyback on an existing peer-to-peer service, but screen all files. Users would download a Qtrax media player that would store tracks and, in time, be able to transfer them to an iPod or other digital music player. More incredible still, they claimed to have agreed deals to license tracks from every major label. It all sounded too good to be true. And it was.
The major labels revealed that they hadn't yet reached deals with Qtrax, or that existing agreements had expired. Negotiations are ongoing; last week the company announced deals with EMI and Sony's publishing arms.
Chief executive Allan Klepfisz admitted that the fiasco, during which it burned hundreds of thousands on sponsorship, billboards and parties featuring the likes of James Blunt, had left it looking "pretty foolish". Klepfisz said he didn't believe advertising alone would be enough but reckoned on affiliate deals, the sale of concert tickets and merchandise to make up the difference.
While many remain sceptical about the prospect of QTrax ever launching on a meaningful scale and others suspect the plan is to agree as many licensing deals as possible before selling up, Klepfisz insisted he was in it "for the long-term". At the start of this week, it took a step forward by signing a deal with Beggars Group, the UK independent that has the White Stripes and Radiohead among its artists.
The problem for these new services, and the advertisers who have signed up to them, is that the most attractive audience are the ones who seem to have fewest qualms about downloading illegally. And even the prospect of listening to a 10-second advert, or having to re-dock their MP3 player to refresh the DRM on tracks they have downloaded, may be enough to keep them away.
Basket cases
According to Mulligan, the music industry is caught in a double bind. It has put all its eggs in the digital basket as the solution to collapsing CD sales, which prevents it experimenting with the same freedom as broadcasters. UK broadcasters have got together to work on Project Kangaroo, which will offer a mixture of pay-per-view and ad-supported content. ITV.com offers free catch-up TV, supported by adverts, as do US services like ABC's ad-funded streaming service and NBC and News Corp joint venture Hulu.com. "You can't expect consumers to understand why TV online is any different from music online. People don't differentiate," says Mulligan.
On one side, the optimistic Anderson worldview points to a cornucopia of free content and services paid for by better targeted, more intelligent adverts. On the other, the content and service industries that bring that advertising to consumers are still not convinced it can bring in enough money for them to survive. The tension won't hold forever, and there are bound to be big casualties along the way. According to Klepfisz, whose Qtrax most spectacularly encapsulates the dashed ambition and hitherto unfulfilled potential of the ad-funded world, the dream is still alive: "We want to prove that free is not a four-letter word. That giving music away doesn't mean giving profits away."
Now enabled by technology that allows advertisers to target consumers more precisely and efficiently than ever, the concept is spreading. From free, legal music to free mobile phone calls and texts, from online games featuring targeted ads to free movie downloads, a glut of startup companies aim to apply the same principle that led to the ITV of old becoming a "licence to print money".
Shift change
When Google's top team embarked on a low-profile tour to launch its pay-per-click AdWords programme in the UK in 2002, it seemed unlikely that by 2008 it would be on the verge of making more money than ITV. It is a telling example of the shift that advertising experts believe will continue to see money flow from scattergun mass-market campaigns to highly-targeted, contextualised advertising.
That shift is one that Chris Anderson, editor-in-chief of the magazine Wired, who in 2006 turned the concept of The Long Tail into the must-read tome for every harassed media executive, is tapping into with his next book, called simply Free. He argues that the power of "free" will spark an online and business revolution, as the costs of bandwidth and storage became negligible.
"Between digital economics and the wholesale embrace of King Gillette's experiment in price shifting [selling razors at less than cost, to make money on the disposable blades], we are entering an era when free will be seen as the norm, not an anomaly," he said in Wired (tinyurl.com/yntwek). "A generation raised on free is coming of age, and they will find entirely new ways to embrace waste, transforming the world in the process. Because free is what you want - and free, increasingly, is what you're going to get."
If that is a rallying cry to some, it's terrifying for others - specifically those, like record labels, that have relied on us paying for stuff. As Anderson identifies, the next stage is likely to be ad-funded delivery of goods and services. Shaun Gregory, the former director of new media at Telegraph Media Group who last October became UK chief executive of Blyk, a mobile phone network that offers free talktime and texts in return for serving its customers with ads, says it is inevitable.
Aimed at 16- to 24-year-olds, the deal is that in return for supplying extensive profile information and receiving an average of two to three targeted ads per day, users get 217 texts and 43 minutes of talktime a month. Recent trade speculation suggested takeup was disappointing, but Gregory maintains it is well on track to hit its target of 100,000 users by September.
He says media buyers need to change tack and focus on the quality of their interaction with young consumers rather than their traditional volume-based play. More than 100 advertisers have signed up including Adidas, Sony PlayStation, McDonalds and the COI.
Users are recruited by "street teams" that prowl city centres. Gregory says today's "savvy" youth market understands the implicit or explicit "deal" involved in getting something for nothing. Nor does he accept that those kids looking for free calls might not necessarily be those with the most disposable income. "The calls that come into our call centre are not to complain about the advertising, but to ask for more," he says.
Vodafone and Orange are believed to be looking at variations on the theme while Virgin, which has a US service called Sugar Mama that rewards completion of surveys or the rating of ads with free minutes, is said to be looking at bringing something similar to the UK. Gregory said Blyk was creating a new category. "For seven years, people scoffed at pay-per-click [where Google has made billions]. People said it was just a bunch of web geeks," he said.
A recent report from Generator Media highlighted relationships with ad agencies and the ability to deliver a premium audience as two of the six key requirements for ad-funded services. "Generic, untargeted ads that are slapped on top of a free content service are likely to produce poor results," it said. Gregory believes mobiles and music are the most obvious Trojan horses, because younger consumers believe they should cost nothing in any case.
Steve Purdham, chief executive of the Peter Gabriel-backed ad-funded music service We7, is troubled by the word free. "People will either pay for something with money or they will pay for something with their time. Music should never be free. There is too much value in its ability to make the hairs stand up on the back of your neck," he said.
Earlier this week, We7 struck a deal with Sony BMG to launch a new streaming service, and is one of several companies developing various kinds of ad-funded models. The evolution of the internet has opened up a wealth of possibilities. Their development has accelerated in recent months as record labels have woken up to the need to speed the evolution of new business models.
"With CD sales falling at an alarming rate and digital sales failing miserably to offset the decline, they're having to look seriously at alternative revenue models," says Jupiter Research analyst Mark Mulligan.
What track record?
The concept of ad-funded music downloads exploded into the mainstream in January when QTrax, a US service promising unfettered access to any song in return for displaying adverts while they downloaded, announced its launch at a music industry conference in Cannes. The executives behind the service claimed this was the way to capture a slice of the revenue that had been pouring out of the industry at an alarming rate. They would piggyback on an existing peer-to-peer service, but screen all files. Users would download a Qtrax media player that would store tracks and, in time, be able to transfer them to an iPod or other digital music player. More incredible still, they claimed to have agreed deals to license tracks from every major label. It all sounded too good to be true. And it was.
The major labels revealed that they hadn't yet reached deals with Qtrax, or that existing agreements had expired. Negotiations are ongoing; last week the company announced deals with EMI and Sony's publishing arms.
Chief executive Allan Klepfisz admitted that the fiasco, during which it burned hundreds of thousands on sponsorship, billboards and parties featuring the likes of James Blunt, had left it looking "pretty foolish". Klepfisz said he didn't believe advertising alone would be enough but reckoned on affiliate deals, the sale of concert tickets and merchandise to make up the difference.
While many remain sceptical about the prospect of QTrax ever launching on a meaningful scale and others suspect the plan is to agree as many licensing deals as possible before selling up, Klepfisz insisted he was in it "for the long-term". At the start of this week, it took a step forward by signing a deal with Beggars Group, the UK independent that has the White Stripes and Radiohead among its artists.
The problem for these new services, and the advertisers who have signed up to them, is that the most attractive audience are the ones who seem to have fewest qualms about downloading illegally. And even the prospect of listening to a 10-second advert, or having to re-dock their MP3 player to refresh the DRM on tracks they have downloaded, may be enough to keep them away.
Basket cases
According to Mulligan, the music industry is caught in a double bind. It has put all its eggs in the digital basket as the solution to collapsing CD sales, which prevents it experimenting with the same freedom as broadcasters. UK broadcasters have got together to work on Project Kangaroo, which will offer a mixture of pay-per-view and ad-supported content. ITV.com offers free catch-up TV, supported by adverts, as do US services like ABC's ad-funded streaming service and NBC and News Corp joint venture Hulu.com. "You can't expect consumers to understand why TV online is any different from music online. People don't differentiate," says Mulligan.
On one side, the optimistic Anderson worldview points to a cornucopia of free content and services paid for by better targeted, more intelligent adverts. On the other, the content and service industries that bring that advertising to consumers are still not convinced it can bring in enough money for them to survive. The tension won't hold forever, and there are bound to be big casualties along the way. According to Klepfisz, whose Qtrax most spectacularly encapsulates the dashed ambition and hitherto unfulfilled potential of the ad-funded world, the dream is still alive: "We want to prove that free is not a four-letter word. That giving music away doesn't mean giving profits away."
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