US internet-radio service Slacker Radio says it is on the verge of turning a protfit, with CEO Duncan Orrell-Jones criticising the ‘unsustainable’ business models of Pandora and Spotify.
In an interview with Music Ally, Orrell-Jones said that Slacker Radio’s status as a niche player is working in the company’s favour much more than gambling everything on hitting mass adoption would.
“We are comfortable with the idea of being at a smaller scale,” he said. “We are on the cusp of profitability.”
Orrell-Jones suggested that larger pureplay rivals, whose main competition are Amazon, Google and Apple (companies “who look at the space very differently and that clearly makes it a challenge”) face a battle for survival.
“Those companies are going to have to find a way at some point to pivot towards a business model that makes sense – because it’s just not sustainable as a public company to continue to lose money the way Pandora is,” he said. “And if Spotify really does want to go that way [into an IPO] at some point, they are going to have to sell a story that the investors can get behind.”
Orrell-Jones pinpointed the rapid growth of these companies’ headcounts as an important element in their risk levels.
“The question is this: how do those guys move towards profitability when they are carrying the sizeable organisation that they have?” he said. “I scratch my head at the sheer weight of the organisations they have.”
Orrell-Jones was not negative about every aspect of the streaming market, however. He sees plenty of expansion potential for the subscriptions sector, for example, including the much-discussed $9.99-a-month price point.
“There’s a lot of room for growth in the subscription space overall and there’s lot of room for growth at $9.99 tier,” he said. “It is still very early days. A lot of people will still open up their wallets for $9.99. But it is really going to come down to product innovation and what is presented to people.”
Slacker Radio, like Pandora, has been exploring multiple tiers of service. It has a free, ad-supported tier, a $3.99 tier with more features and personalisation, and a full on-demand tier for $9.99 a month.
With a pre-Slacker CV that includes stints as an executive at Disney Interactive Media Group and Nintendo, Orrell-Jones thinks that there are plenty of lessons from outside music that our industry can apply to the growth of subscription streaming.
“I came from a company where we had developed an interesting business across a wider range of subscription services – and that included music and audio products and gaming and all the way up to running a Disney-branded mobile phone service for Japan,” he said.
“It’s an imperfect analogy, but if you look at what’s happened in the gaming space – where there was more freedom for innovation around pricing – there was an awful lot of interesting experimentation around free-to-play models.”
“It is not easy to do in [the music] space. In order to launch a service, you have to go and get licences from a number of different players. But over the coming years there will be more granularity in pricing that is a little more focused on attracting the broader market of people. There is room for growth beyond $9.99.”
Slacker Radio is currently only available in the US and Canada, with a catalogue of around 13m tracks – less than larger on-demand rivals, because it has focused on North American catalogue.
Orrell-Jones declined to share details on Slacker Radio’s user numbers. “We don’t share those,” he said. “We are reticent to do that as those numbers end up being a distraction from where we see the opportunity ultimately.”
(The service had 35 million registered users in May 2013, when it was estimated to have between 500,000 and one million subscribers.)
Orrell-Jones did talk about the growing importance of personalisation in the streaming market.
“Ultimately, we believe that one of the winning propositions is going to be more about offering a full-fledged audio experience that is personalised – [that’s] versus one that is only focused on music,” he said.
“What has made radio engaging is that personality; it’s not just about doing a wonderful job of sequencing tracks on terrestrial radio. We feel that empowering people to add voice and storytelling around music is going to be really compelling to people.”
While Slacker Radio still has its on-demand tier, Orrell-Jones said that the company sees plenty of opportunity targeting the bulk of consumers who have traditionally listened to music for free.
“The reality is – if you look historically at where money is being spent on music – the vast majority of people have not spend a lot of their disposable income on buying music,” he said. “It is a small subset of the population who are spending an awful lot of money on music historically. Most people have consumed their music largely through free experiences like terrestrial radio.”
“We are focused on reinventing radio. We are not trying to win in the world of creating playlists and managing your music – or being a replacement for those people who are highly lean-in and playlist curators […] We feel that empowering people to add voice and storytelling around music is going to be really compelling to people.”
Orrell-Jones admitted to concerns that Slacker’s biggest rival in the US, Pandora, was also heading down this road. Now he thinks it’s more focused on competing directly with Apple Music and Spotify.
=“It seemed that Pandora was going to go down that road, but now they seem to be focused on creating an on-demand service,” he said.
“Everyone seems to be focused on doing an amazing job in on-demand. Pandora may be able to do a better job than Spotify – but that’s a pretty tough task.”
“If all they [Pandora] are doing is offering a tweaked version of what Spotify is already offering in the marketplace – $9.99 on-demand – it is super-difficult. What they are claiming, and it will be revealed soon, is something that is much more elegant and simple to use – and maybe that captures people’s imaginations.”
Slacker’s hope is that Pandora and the other big-name rivals could become vulnerable if their services start to feel bloated, and slow down their product innovation.
“If you look at what Pandora has done in the last five years, it is relatively little and therefore they are highly vulnerable to disruptors,” he said – an assertion that Pandora would, of course, vehemently disagree with.
“The nice thing about being a smaller company like us – a small company that has got a strong footing – is that we are in a much better position to disrupt than large companies like Pandora that have an entrenched model, huge staffing and things like that.”
Does this strong footing provide a launchpad for Slacker Radio to expand outside North America?
“We have looked at it a number of times and have gone deep down the path of launching,” said Orrell-Jones, adding that if these ambitions revive, they may involve partnerships with automotive or hardware companies, rather than standalone launches.
“It’s anyone who’s got the desire to reach an audience with a music-centric radio-like product,” he said of who those partners could be.
While the industry debate around streaming will inevitably gravitate towards the biggest services, Orrell-Jones’ hope is that the companies that were once the disruptors are now at growing risk of disruption themselves.
“I believe very passionately that we are at the beginning of this industry and this category in terms of the innovation that is going to happen,” he said. “Five years from now, we will look back and laugh at the characterisation [of it now]. There are going to be things brought to the table that will disrupt the category.”