Labels continue to show pessimism and caution about ad-supported and hybrid music services. At a MIDEM panel on streaming music, Stephen Bryan, Warner Music Group's senior VP of digital business development, warned of embracing digital services that return little to rights holders.

"We want to do more as a music company to make the paid services as attractive as they possibly can be relative to free options…The concern on the ad-supported side is obviously to make it engaging enough to have an opportunity to up-sell. We believe we should be doing more to ensure we’re not undermining the paid service by creating a service so compelling that they don’t see enough value in taking consumers to the paid service."

Bryan's statement echoes comments from WMG CEO and chairman Edgar Bronfman Jr. In WMG’s fiscal Q2 earnings call (on May 8, 2009), Bronfman expressed disappointment with ad-supported services' performance and said "advertising alone simply is not going to be enough." That statement seemed aimed at MySpace Music. Bryan's comments come at a time when the industry is wondering how a popular streaming like Spotify can encourage people to upgrade from the free, ad-supported version to the feature-rich paid version.

What constitutes adequate revenues from streaming services is going to be a moving target. Labels have already had to lower their expected payouts from such services. The question is how many times labels can lower their expectations for these services. By keeping the bar raised high, labels are forcing ad-supported services to strive for greater revenue than they would otherwise. This is the right strategy. Dropping rates this early would send a signal to music services that would not encourage greater innovation.

As I wrote last March, "If a profit cannot be attained, one should question whether or not a service is maximizing the value of its assets and user base." But there's a downside to not taking lower streaming rates or shares of profit. Until a service actually clears the bar, ad-supported services will continue to falter and labels will lack stable ad-supported partners. As Billboard reported on Sunday, David Jones, global CEO at Havas Worldwide and global CEO of Euro RSCG Worldwide, showed deep pessimism about
ad-supported models during an interview with Billboard editorial director Bill Werde. "The key thing is I don't believe the interruption model will work," he said. "I think those models out there that say 'if you watch a commercial we will give you music for free,' I think will fail." Current services, he said, use the "interruption" model of television advertising but need an "engagement model."

However, Jones holds out hope that a sustainable model will be found eventually. "Somebody will figure it out, and the person who does is going to make a lot of money, but I'm not a massive believer in the advertiser-funded models for music."