U.K. streaming service We7 says it is now able to cover all costs for its on-demand streaming from advertising on the site.

The company had its first month where money owed to rights holders was paid for by display and audio commercials, suggesting the business model is solid.

The ad-funded service believes it has got the economics right by limiting the level of free streaming (by intensifying the advertising levels, for example) until it had the advertising to cover costs. It has around 3 million users.

Executives at the company point to the closure or acquisition of services such as iMeem, SpiralFrog, iLike, Lala and Ruckus as proof that the scale of ad-funded services needs to be carefully managed.

"Making ad-funded music on-demand add up has been our single ambition since We7 first started," said CEO Steve Purdham in a statement. "We're thrilled to be able to say that We7 can deliver real value to music lovers, rights owners, artists and advertisers alike by making it add up in a fair way."

We7 said that 1 million plays of a song would generate payments to the music industry of between £2,000 ($3,000) to £4,000 ($6,000). Those figures dwarf some of the numbers thrown around in relation to Spotify's songwriting royalties for Lady Gaga's "Poker Face," which a Swedish newspaper reported had earned the singer just $167 for 1 million plays. Spotify said that figure was misleading.

"Now that we have achieved this momentous milestone we feel confident about increasing scale," said Purdham. "Music has never been a 'freemium' model - the key going forward is protecting the value of music with smart economic delivery. It should also be said that we could only make this happen by good support from the major and independent record labels, artists and the PRS for music."

Last month We7 announced that Yahoo was providing display advertising sales for We7, putting the ad-funded service in a better position to build its audience without stacking up unpaid bills to rights holders.

Yahoo serves advertising to brands wishing to engage with We7's audience, with Yahoo taking a cut on revenue as a third party partner. It covers display advertising as well as integration by brands with the We7 site - such as partnering in relation to specific genres on the site - and sponsorship.

The U.K. streaming service has recently added subscription services for PC and iPhone, and it sells a-la-carte downloads, but the ad-funded model remains the center of its offer.

"What is really exciting for us is the fact that the equation has worked and has been achieved with ad rates which are sustainable at massive scale and the recent partnership with Yahoo will help us achieve this," said Purdham.

"There are still many challenges ahead, but with the potential of trillions of individual song plays, the opportunities for We7 and the music industry are huge. Ultimately, it's all down to consumer choice - if the consumer wants to listen to the music and nothing else, then the re-emerging subscriptions models will be a big part in generating value. If they choose not to pay, then We7's ad-funded model will ensure value is preserved."