Literally every man and his dog within the recorded music business is at a fever pitch talking about how ad-funded models are the way to go. With the likes of Blyk, myspace music store, muzu, We7 and many others advocating this new model, perhaps they are right? The real test, though, is whether music fans will actually be prepared to see ads before getting access to listen to a track they like. Also, are the models commercially viable in the long term for both the record labels and the artist?

On Monday earlier this week I attended a digital music event for the independent sector. The panel that focused on funded advertising models featured five proponents and one label. The models were varied, but all had similar businesses in terms of revenue distribution after costs. One model revolved around listening/watching an ad and then having access to a single stream of music (We7) paying with “money or time”, another discussed the benefits of superior and subsequent video or audio on each track and once seen on the fan owns the track, but it is Windows Media DRM’d (Spiral Frog). Myspace is a straight game into banner advertising where the label receives a percentage of all ads displayed on their catalog of artist pages.

All proponents of the ad-supported model always insist that since it is ad-supported, it will be free to the consumer and thus help curb P2P file sharing and piracy. Are you telling me that a teenager who normally goes to his favorite torrent site and copies all the songs he wants for free will be incentivized to go to a site and have to watch or listen to ads before getting access to his song? I would say if anything this is just putting up another non-DRM barrier in front of them, which in turn discourages the P2P file sharer.

I asked the question, who in the audience for this conference would be prepared to see/hear an ad for access to a free track? Only 15 to 20 percent of the audience raised their hands halfway. In my mind at an industry conference, if there is such a low percentage of industry personnel actually buying an ad-funded model, I suspect the percentage will be much lower with music fans on the street.

At this conference, Simon Wheeler, Chief Digital Officer at Beggers Group, stated that if the companies driving the ad-supported model can’t even afford to license music from the ad-supported business model, what’s the point of a revenue share? ? In my opinion, this is a key point. If an ad-supported model doesn’t generate enough revenue to allow the business to license music, what’s the incentive for a record label to accept a revenue share, since the revenue earned obviously won’t be enough? How can these companies expect record labels to accept lower-than-traditional fees for music to support a business model that, at first glance, appears unsustainable?

So what do the commercials (no pun intended) look like in terms of paying the record labels and, later on, the actual artists on the network? If you look at the myspace model, all ads are bought on behalf of brands by media agencies, usually on a CPC or CPM model. These models usually buy ad impressions on the website based on £8 – £10 per 1000 ads posted. After costs, an ad-funded company offering a record label for free expects the labels to agree to a share of the revenue. Realistically this would leave record labels with a maximum of £3 – £4 for every 1000 ads placed on their artist page and this would typically translate to 500 – 1000 songs played.

So what would an artist receive from such ad-funded deals? Typically, an artist in the major-label category would receive 16 percent royalties before producer and packaging deductions, and that’s if they’re lucky enough that their royalties aren’t cut in half because the label feels they digital is a “new medium”. So 16 per cent of, say, £4 would equate to £0.64p for the artist before deductions for 1000 downloads or streams of her song. It is understandable that many labels are reluctant to accept such a rather simple model due to their unsustainable economic models.

At present this in my mind is a serious obstacle. Until advertisers are willing to pay higher rates in the digital age for targeted advertising that provides free music to end consumers, these models are doomed to fail. If anything, I see these ad-funded models as a further devaluation of what music offers to the fan and what it is to the business. To date, it is clear that the many different subscription models have not been what the industry was looking for, so I ask the question, will the ad-supported models be any different?