Now Spinning: DJ Taco Bell

Songza’s “I made you this mixtape” model has attracted $6.7 million in venture capital funding, 5.5 million monthly active users as of September and sponsorship deals with Febreze, HSN, Samsung and Taco Bell. What differentiates Songza is that it didn’t encourage these brands to buy interstitial ads. Instead, Songza’s editorial team collaborated with each company to create specially crafted, branded playlists.

“We have you engage seriously with one brand over one session rather than other services who bug you like a mosquito every 15 minutes,” CEO and co-founder Elias Roman said.

Most Songza playlists require users to engage with a Solve Media ad – which typically requires typing an answer to a question into a box – or watch a 15 second video ad before listening. There are no interstitial ads interrupting a user’s listening experience. Songza prefers to sell brand on what Roman called native advertising for streaming music.

By making the brand part of the music selection process, Songza can incorporate the brand into its platform without ruining a user’s listening experience, he said. Brands, in return, receive the entire share of voice within that playlist and whatever good will they can glean from subsidizing a block of music listening.

“Their playlists are so good because there’s someone behind the music creating songs around this theme,” DigitasLBi’s vice president and director of media Eric Perko said.

DigitasLBi created a branded playlist for client Taco Bell in late August to promote the debut of the Fiery Doritos Locos Taco. The playlist ran for five weeks, and Perko said it was a resounding success, especially on Twitter where people were ecstatic that Taco Bell had become a DJ. The playlists featured indie rock bands Phoenix, Ra Ra Riot and Portugal the Man.

“It was great because it was uninterrupted,” he said. “Once the music starts, it’s this pristine experience, and it’s additive.”

Febreze is currently sponsoring relaxing nighttime playlists featuring the likes of Emmylou Harris and Shawn Colvin to promote its new Sleep Serenity brand, and YouTube has a branded Songza playlist for its upcoming YouTube Music Awards. Songza declined to comment on its pricing and revenue, but an agency executive familiar with Songza’s ad model said it costs $500,000 to run a branded playlist for four weeks.

Roman says that Songza’s minimalism goes against the typical music platform strategy of using quantity, not quality, of ads to find a sustainable business model. The streaming music industry is up against rising royalty rates. But if streaming music platforms try to offset rising costs by serving more ads, they risk upsetting users. The only other option is to convince users to upgrade to premium accounts, which allow for unlimited, ad-free streaming.

“With royalties for music streaming, music services need to find any way they can to earn consistent revenues, and subscriptions are the best bet,” said David Berkowitz, CMO at agency MRY.

But convincing consumers to start paying for what they’ve been receiving for free is a tough sell, Berkowitz added. A July report from Nielsen said that album sales were down 4.6 percent in the first half of 2013 from the same six month period in 2012.

Some streaming companies have even been accused of using excessive advertising to annoy people into buying premium packages. Roman said that this could negatively affect the advertisers involved. “I’m worried that a CMO is going to be on the receiving end of that experience and say, ‘That sucked. Why did I just pay for that?’”

Not that Songza doesn’t welcome paid users. Songza — like iTunes Radio, Pandora and Spotify — offers an ad-free service that costs $3.99 per month. When users exceed their “skip limit” for tracks, they’re served an ad to upgrade to ClubSongza.

“Our hope is that people don’t opt-in to our paid service just because the ads are painful,” Roman said.

It remains to be seen if this Songza will create a sustainable business. Roman declined to discuss whether it was profitable. In order to get there, he’ll either have to convince more users to pay or more brands to become DJs.

Image via Shutterstock