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Music service We7 makes adverts pay

We7, the online streaming music network set up by ex-Genesis star Peter Gabriel, has become the first UK-based on-demand service to cover the cost of its content purely using advertising.

Calling the achievement a "momentous milestone", chief executive Steve Purdham said the company earned enough money last month from "blipverts" and display advertising to fully cover the costs of streaming music.

We7 was set up Gabriel and Purdham in 2007, along with with Gareth Reakes and John Taysom.

The service boasts more than five million songs in its "cloud-based jukebox", which attracts three million users a month.

For every million plays of a song, We7 generates between £2,000 and £4,000 for the music industry. Although the service doesn’t yet make enough from ads to cover its full running costs, it is now raising enough revenues to cover the fees payable to performers and songwriters, and pay for internet bandwidth.

Purdham said in a statement that his company was "the first… to demonstrate that the music on-demand, ad-funded model can work in the mainstream market, and that each song can be paid for at a fair and reasonable rate". If revenues continued to rise at the current rate, he added, "we will hit profits by the end of the year."

We7 is seeking to head off criticism levelled at its main UK rival, Spotify, over the level of revenues paid to artists. Swedish newspaper Expressen last year claimed that one million plays of pop star Lady Gaga's hit Poker Face on Spotify earned the singer just $167. Earlier this month the British Academy of Songwriters, Composers and Authors accused Spotify of paying "tiny" royalties to artists.

Update (15/7/13): We7 is now Blinkbox.