Last.fm and Yahoo Ad-Funded Music Could Signal Things to Come

Yesterday, Last.fm revealed a new direction for its online music service – a free, ad-funded on-demand streaming platform. The new site will enable users to simply enter artist or track details, and stream full-length, high-quality music of their choice directly to their computers.

What’s the catch? Well, at present you can only listen to each track three times, although this could be extended according to Last.fm execs.

The platform will be funded solely through advertising, which will appear alongside every song. Apparently even without a user login, ads will be targeted using data that the site has accumulated in the years it has already been live.

Labels and artists will receive royalties per listen, so the more popular a track, the more revenue it will generate. The system is also open to unsigned artists that can upload their music to the site, potentially removing the labels from the loop entirely.

News reports today suggest that Yahoo is also in early discussions with labels, perhaps with a view to offering MP3s for download as part of an ad-supported model. Meanwhile various other companies are experimenting with similar formats. For example, British company We7 currently offers full length MP3 downloads with “pre-roll’ audio ads before each track.

Perhaps the most interesting side of all this is the acceptance of the model from the music industry. All four major record labels have signed up to the Last.fm service, as well as 150,000 independents.

As labels dig desperately to find new revenue models, therefore, it appears that ad-funded digital downloads could represent the future of the industry. The biggest worry for the labels however, is that they may eventually find themselves out in the cold entirely, as the opportunities grow for artists to generate profit directly from ad-funded sites.