Free All Music's Brian McCourt interviewed on CNBC... appears on reporter's blog too

South By Southwest: Composing a New Music Model

Published: Wednesday, 17 Mar 2010 | 3:42 PM ET
By: Julia Boorstin
CNBC Correspondent

Eighteen hundred bands, music industry execs, and thousands of fans are gathering in Austin for the annual South by Southwest music conference and festival.

The crowds are huge and the mood is positive ­ you'd never guess that piracy has all but decimated the music industry, with music sales plummeting by over half in the past decade.

Concerts are a rare bright spot, with worldwide touring revenue up 12.5 percent last year despite the pullback in consumer spending. And the booming concert business is played out here at the festival, where over 1800 bands will perform in four days.

Despite the festive concert atmosphere, the big issue at both panel discussions and at music venues is how to revive music industry revenue. One novel idea attracting quite a bit of attention: giving away music for free. Consumers have become so accustomed to pirating music; some labels are starting to give away songs for free, getting paid instead by advertisers. gives users up to 20 free song downloads from Universal Music and EMI each month. In exchange for each song users have to watch a 15 to 30 second commercial.

Advertisers including Coca-Cola [KO 53.84 --- UNCH (0) [] ], Warner Brothers Television [TWX 31.20 --- UNCH (0) [] ], and Zappos are on board ­ they pay the website about $2 dollars per download, much of which goes to the music label. In exchange the advertisers get access to's users who are now testing the system. Music lovers seem excited ­ over 100,000 have signed up for a wait list.

The free, ad-supported music model faces some major challenges.

Billboard editor Bill Werde tells me that he thinks music labels are resistant to the idea of giving away music for free to customers, even if advertisers compensate them. They don't want to get users out of the habit of paying for music, if they still do actually pay for music. But at the end of the day it'll all come down to advertisers. Will advertisers get the kind of return on investment they need to justify spending about two bucks per song download? Will users absorb the brand message or will they procrastinate during the ad by clicking elsewhere? It'll take some major advertising supply for this model to scale to the likes of an iTunes. We'll be watching.