Published:
27-Mar-09
London-based online music service Last.fm will curb free access to its interactive radio for users outside the US, UK and Germany. While recommendation, scrobbling, informational and social networking features will still be available free of charge, radio service will only be accessible on paid subscription basis (priced at EUR 3/month). Last.fm has long operated a premium paid subscription option which allowed users to experience the service without advertising. In the US, UK, and Germany the company also introduced on-demand streaming in January 2008 which allows three full length on-demand streams per track of major label music.
The company is also curtailing streaming through third-party applications. Although newly documented public radio API will be made available, only paying Last.fm subscribers will be allowed to stream radio via third-party applications. Moreover, streaming to mobile applications will no longer be allowed on account of Last.fm's licensing provision limitations.
Our take...
Online music businesses typically struggle to break-even. The situation with ad-funded services free to the end consumer is especially difficult: under current combination of licensing royalties framework and embryonic state of advertising market surrounding music services (and economic downturn affecting advertising sector as a whole) most ad-funded legal online music services can easily be bankrupted by their own popularity.
In the UK standard licensing rates for free-to-consumer interactive webcasting services stand at a minimum of £0.001646 per track (PRS for Music charges 6.5% of revenues or £0.00085 per track streamed (whichever is greater), PPL charges further £0.000796 per track). This translates into a minimum £1.6 per track CPM needed to cover licensing costs alone. With notoriously low CPM rates associated with music, it is unlikely that Last.fm's ad-revenues cover the company's royalty obligations and streaming costs even in its home market, not to mention the territories where the company has no ad-sales team presence.
comScore Media Metrix data indicates that only 30% of Last.fm's monthly unique users come from the US, UK and Germany. A mass conversion of users outside these core territories to paying subscribers is unlikely to occur. However, focusing on the three territories with established marketing teams and shedding losses incurred from unmonetizable usage from outside the core regions should improve the company's balance sheet – a much needed measure in the short run given the December staff reduction in a bid to minimize operating costs.
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