A $100 million Gold Coast company has developed a concept that is set to rock iTunes after sealing a deal with two of the world’s largest music labels. Universal Music and EMI are dancing to the tune of ad-supported music start up Guvera — an unlisted public company on the cusp of revolutionising the music industry.

GUVERA Limited is a unique model for music distribution. It matches the audience with the advertiser and the music so that the consumer has non-confrontational access to music paid for by brands.

Major record labels like it too. Soon after licensing its content to Vevo, Guvera signed off with Universal Music in the US and EMI Music granted US-focused content rights to the company.

The sponsor-supported Guvera (guvera.com) wants brands to pay for downloads — the latest experiment in a challenging and highly experimental ad-based terrain.

The inventor behind the Guvera model and of Guvera Claes Loberg, says it’s a win-win model.

“One of our missions is to make music free for people worldwide, while still paying the artists and the labels that create and distribute it,” he says.

“With Guvera, every brand can offer engaging content to their target consumers without disrupting them with ads and can use their channel to represent music that relates to the brands’ personality.”

Brands will pay a fee when their targeted consumers download music and companies such as Universal Music Group will, in turn, receive a percentage of that fee per download to distribute back to their artists and/or labels.

Executive vice president of business development and business affairs at Universal Music (whose artists include Elton John, Lady Gaga, 50 Cent and The Killers) in the US David Ring, says the concept makes perfect sense in that the Guvera service will strengthen the connection between artists and fans.

“Universal Music is committed to cultivating legitimate online entertainment by offering our consumers even more ways to enjoy the musical experience where they want, how they want and in the manner of their choosing,” says Ring.

Consumers can search for any song, artist or musical genre they desire and will be directed towards relevant brand channels providing these tracks or track groupings.

Guvera’s technology also makes it possible for brands and advertisers to target broad or very specific consumer segments in what Loberg calls a non-intrusive way, by showcasing particular aspects of a brand’s personality with relevant music genres in their branded music channels.

For example, a 25-year-old female consumer who searches for pop music and mentions that surfing and wakeboarding are among her passions will be directed to music channels presented by brands with similar sensibilities.

Loberg believes the average Joe will make the connection between a free download and the brand association.

“When you search for a song you are shown a list of brands that will pay for it, you get the option to choose one that is relevant to you, that may house relevant music and when you click on it, it takes you to their channel,” he says.

“On that channel you see a bunch of music that relates to theirs and your personality but also a bunch of other offers or promotions that they house within their channel.”

The company recently raised $20 million in second round funding from AMMA Private Investment, bringing its total funding to $30 million from AMMA. This follows an initial capital raising of $100 million based on $1 per share.

“Raising capital for a brand new venture is not for the feint of heart. I developed this idea in 2005 and have pitched it to media and investment groups and individuals in London, New York, Los Angeles, Sydney and Asia,” says Loberg.

“It took three years of redeveloping the idea, finessing the pitch, learning the problems, re-building and re-pitching to get investors on board. It didn’t help that we raised $10 million during the worst possible investment economy in recent years but that in itself is further personal validation that this venture is of interest to a lot of people.

“Many times on this journey I was told by investment groups — that while it may be a brilliant idea — global music companies would never do a deal with us and allow us to distribute their music in this fashion. I didn’t believe them and forged ahead pitching anyway. As it turns out, they were partially right because music companies wouldn’t have done a deal with us at that point in history. We were a bit too early.

“As luck would have it, investment took longer and arrived just in time to allow us to do the deals at the perfect point in the history of music — when they were open to new models. We raised the first money in 2008, which allowed us to work with the best legal firm in New York and start the deal and structure process with global music giants such as EMI and Universal Music group which we have now finished deals with.”

But Guvera is not the first to offer a solution to illegal file sharing. In the US, SpiralFrog and Ruckus were considered the answer. In 2009, SpiralFrog became the second ad-supported service to shut down. Ruckus, which catered to college students, also went silent.

The New York-based SpiralFrog made a splash in August 2006 by attempting to offer music free of charge to the public while supporting the site through ad sales. Media outlets such as The New York Times, Reuters, and US Today questioned whether the site might one day challenge Apple’s iTunes. It died with debts totalling more than $9 million.

In the LA Times, writer Jon Healey wrote that Guvera ‘is different enough to make me think it might actually work’.

Healey said that Guvera “has at least one thing going for it that SpiralFrog didn’t, a model that’s friendly not just to consumers, but also to advertisers”.

While the collapse of companies like SpiralFrog has triggered some concerns about the longevity of the Guvera concept, Loberg believes his model is the real deal.

“SpiralFrog and similar ‘ad supported music streaming or downloading services’ are based on what I call ‘the old model of advertising’, which is disruption-based advertising, through showing ads or banner ads or anything that is trying to distract the viewer or user from the experience they are consuming,” he says.

“In today’s world, consumers can click past anything, so they ignore most things and as a result the old model of disruption based advertising is broken whether it is on TV or dragging that model on to the web.

“The advertising industry presently recognises that audiences are now in control so it must be about engagement.

“Guvera is a reversal of the advertising model. Instead of buying ads on our channel — the advertiser becomes the channel. We are not an ad-funded music service, we are a music and content supported advertising channel.”

Guvera.com will launch in Australia this month initially on beta with EMI, Virgin and Capitol music labels content on board.

The company has invited a ‘few thousand people’ to participate in its beta streaming music and downloading free music that they can play on any device.

“We are progressing through multiple bug fixes with this audience and the move out of beta will mean a more robust system that makes all songs available from the major labels around the world,” says Loberg.

Working out of New York for the past year, Loberg and part of his creative team will return to the Gold Coast later this month to oversee the Australian launch in March.

There are already 5000 users ‘test driving’ and downloading tracks for free.

The journey has presented monumental challenges set against one of the toughest start-up landscapes imaginable. For the Guvera team, the hard work is yet to pay off.

The true litmus test will be how it’s received by the download generation and whether brands will see bang for their buck. Some commentators say the ad-supported music sector is going through a shakeout. The model has yet to be proven, but Loberg is confident. He’s on a roll.

“It was extremely exciting last year on December 15 to ‘flip the switch’ and make the system live for the first small group of beta testers and on January 1 increase that to the several thousand users,” he says.

“I was in New York at the time, busy building the new team and operations for our US launch in March this year, but I was on the phone with a very excited team buzzing with excitement and champagne.

“Highlights have been signing deals with the biggest music companies in the world after 12-18 months of negotiations, receiving patent approvals, trademark approvals, continued investment interest, intense interest from some of the biggest brands in the world as they signed up for our beta launch, and every time I see a new technology release and see the extent of the system we have built that used to be a dream and is now a reality.

“We are the type of team that thrives on the concept of making something cool that has a positive effect on so many people and industries. We all love that we’re creating something new and it’s actually happening.”

Guvera has operations in the Gold Coast, Sydney, Melbourne, New York, London and Los Angeles.

Click here to download with Guvera CEO Claes loberg

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