Our take...
The momentum behind 'free' music services is growing. However, as Screen Digest has previously observed, standalone ad-supported music services are often unsustainable under the current combination of high music royalties rates and low CPMs associated with music. The ad-funded personalized internet radio Pandora recently announced that it faces closure as its royalties obligations are set to reach as much as 70 per cent of its revenues come the end of the financial year. Under such circumstances, most likely survivors are services enjoying corporate backing, such as personalized radio Last.fm (acquired by CBS in May 2007), Nokia's forthcoming Comes with Music, or old guard free music video streaming from MSN, Yahoo, and AOL. While label royalties of such services are subsidized by corporate parents, start-ups that manage to attract investment from Major Labels often get the opportunity to develop a genuine sustainable standalone ad-funded business as label investment often comes with favourable licensing terms. In fact, recent months have seen intensification of label investment in start-ups developing next generation music services (Warner Music Group (WMG) and Universal Music Group (UMG) have been particularly active).

The deal between VidZone and Sony continues SCEE's strategy of partnering with content owners and aggregators. Although details disclosed on the terms of the deal are scarce, it appears that Sony will not back VidZone, financially rendering it a standalone music streaming service. Moreover, with VidZone ads to be distributed independently of Sony's existing advertising partners (thus eliminating possibility of value-added bundling), the ad revenues are unlikely to be substantial despite the potential for significant uptake that association with a popular consumer device gives to a service in a hardware driven music market.