Rdio launched in the UK in May this year, hoping to find a space in the streaming subscription market alongside Spotify, Napster, Deezer, RaRa and others. Its slow but steady international expansion is akin to Spotify’s but not at the breakneck speed of Deezer’s. Now it is hoping that by using artists as sub-promoters (offering them a cut of any subs they drive among fans) it will have an important point of differentiation. CEO Drew Larner explains how this promotion will work, why it’s not a broadside on already tattered artist/label relationships vis-à-vis streaming rates, why Asia is a top priority and why Apple is an ever-present threat.
What stage is Rdio at now?
We are continuing our roll out of the service into additional territories and are now in 13 markets. After launching in the US and Canada, we are now in Brazil, the UK, France, Germany, a number of Scandinavian territories, Australia and New Zealand. We expect to continue that roll out over the next couple of quarters to additional territories in Latin American and open up in Asia.
Where specifically in Asia? Japan is obviously the big market.
Japan is somewhere we are definitely focused on and somewhere we want to figure out how to crack. Japan is a very particular market and local content is critical. It is also an expensive market to launch in – for various reasons. It’s something we want to do right. It starts with local content and we are beginning to make some good progress on that front. Other than Japan, it runs the gamut from some of the smaller territories like Hong Kong, Malaysia and Singapore that we are looking at, as well as another enormous territory – China. We have had some conversations in China but, like Japan, we are not going to make that move without having local content and local partners.
Given technological and piracy issues there, will it have to be primarily a mobile play in China?
I would agree. Monetising Chinese consumers is challenging – not just for music but for other content services as well. You ignore it at your own peril but it has to be done with the right partner and the right content; it’s certainly a challenge to launch there as opposed to launching in a Western European country.
Acquisitions have defined streaming this year – Tesco buying we7 in the UK, Beats buying MOG and Napster being rolled into Rhapsody. Is this a sign the market can’t stand on its own yet?
It’s cyclical. Number 1, it’s an expensive business to be in, without question, and there has been a lot of money poured into it recently and also over the course of the past 10 years. To maintain independence requires a significant amount of funding. You have independent companies like ours and then you have enormous conglomerates that are in lots of other businesses and have other sources of revenue like Apple, Microsoft and Amazon.
It’s certainly challenging from a funding standpoint. Of course there is going to be consolidation and shakeouts and some companies are going to have to figure out alternative strategies or exit – or simply cease to exist. That’s natural in any business that requires this kind of capital. But there are new players coming in here as well. You see lots of new players – whether they are small apps built on top of APIs or other services that are looking to compete with us. It’s a very frothy space. There is continual interest on the financing side of trying to crack it.
Will you go on a buying spree or look to sell yourself?
No. I don’t think we are looking to be acquisitive. At our core we are focused on building our service and bringing the best music experience we can to our users and expanding that globally.
Is digital finally going to offset the physical slump and where will streaming sit within that?
That’s the question of the moment, without a doubt. We wouldn’t be in this business if we didn’t think the tipping point was coming. Has it happened yet? No. If you look at the entire ecosystem of subscription services out there – us, Spotify, Rhapsody, Deezer etc. – and count up all the subs, it’s maybe 8-10m subs. Total. Globally. Which is a lot. But when you compare it to, say, Sirius XM in the US which has 25m subs you realise that streaming is relatively nascent.
Is that tipping point coming?
I certainly believe it will. I wouldn’t be busting my ass in this business to try and make it work if I didn’t think that people are ultimately going to make that shift. Is it happening tomorrow? No. Is it happening in the near future? My expectation is that it will.
How will it play out between subscription services and à la carte ones?
Our thought – and we are making a big bet because we are spending a lot of money here – is that ultimately people will shift from ownership to access as they see the value in paying what we believe is a reasonable amount of money every month to be able to access anything and everything wherever they want and however they want. We believe that people will get over that hump but it hasn’t happened yet.
What are the barriers here? Are subscription services super-serving obsessive but not mainstream consumers?
The challenge is getting them to use the service and to see what it’s about. We, like other services, have spent a lot of time distilling the message into a very short and elemental pitch – and that is very challenging. It can be confusing and overwhelming for people. Just purchasing a CD or a download of a song they like is much easier and is what they have been used to doing.
Our challenge is getting people to experience the service and see what it’s all about; there’s that light bulb moment when people starting using it and they get that all the music is there and they can listening to it as much as they want. When the light bulb goes off, they’re hooked. It’s just getting the light bulb to go off.
Does Spotify, with its free tier, have an unfair advantage here?
I wouldn’t say that’s necessarily the case. When you look at what we are doing here in the US – which we are hoping to bring to the UK and other territories – is offering a very expansive free experience on the web in the same way they do. The difference is that we don’t have advertising. We are doing 7-day and 14-day trials elsewhere but in the US on the web it’s a number of months [the length is set at Rdio’s discretion] and we think it’s a purer experience as it doesn’t have the advertising in there so it doesn’t interrupt the flow.
Ultimately we do cut users off. Our philosophy is we will subsidise them for a period of time with a view to upselling them, but after a number of months if they haven’t chosen to subscribe we can’t continue to subsidise them as we don’t have advertising revenue coming in to address that lack of subsidy. Will we consider having advertising potentially and going to that model? Never say never, but at the moment it’s not on our near-term roadmap.
You have got involved with hack days. Why?
The use of the API and the ability for developers to come up with interesting applications that sit on top of the music and ultimately result in more subscribers is, we believe, is a great way to spread this model. We are working towards better and more robust distribution of the API to allow people to come up with interesting stuff as it’s a great way for people to discover music. As we start to get the API out there more we believe it’s a great way to spread the word.
Almost everyone except Apple is opening their API. Is there a message there?
There is that discussion about an open ecosystem versus a closed one. You can’t argue with the fact that Apple has succeeded tremendously well by keeping it a closed system. This is something they hang their hat on and they have mastered that. We are coming at it from a different perspective and hope that as we open up and continue to get this out there more it can result in more uptake of the service.
Facebook’s push towards frictionless sharing gets a lot of bad press. How important is it for you?
It’s certainly great from an awareness standpoint. We, unlike Spotify and some of the other services, don’t require Facebook to log in. We have the same integration so people can see people using Rdio and the thing we are finding is that it’s a great way to bring people in the door because it is frictionless; but the challenge is getting them to stay with the service.
We are getting lots of new users but keeping them engaged after that is something that we, and this is not limited to just us, have to work on better. Sharing and social is something that we have taken a very different view on.
On Facebook you can be friends with your mother or your roommate from college and you may not care for their music taste or even think they have good music taste.
We have looked at that in a different way. On Rdio, I follow about 500 people. I don’t know most of them but I have chosen to follow them as I see they have good taste in music and they turn me on to new music on a daily basis. So by having a feed that is based on all the people on Facebook, it is almost like an open tap and it’s just too much and is not curated in a way I want. Our approach is nuanced with it’s an important distinction in terms of how we have built social versus just plugging into Facebook and using that as a way to discover new music.
Spotify has apps within its client player and Facebook is offering an app platform too. Will you?
It’s certainly something we are looking at. What they [Spotify] are doing is definitely a distinct direction to build a platform with apps in their platform as opposed to what we are doing with the outbound API. It’s certainly something we are studying and working out our strategy in terms of how we want to approach it.
Deezer is expanding internationally at a rate of knots. Will you go headlong like this?
It’s hard to comment on other companies’ strategies. Our goal, and it’s just a question of how we do it, is to be global. We have been live in the UK for a while but we haven’t done a lot of marketing for various reasons but we intend to, from an awareness standpoint, really make big push in the UK and Germany and some of the other big European territories come the beginning of next year. It’s resource allocation and timing.
You have talked about a referral programme for acts where they get a cut of subscriptions they drive among fans. When will it launch?
We haven’t official launched it. We have just teased it as it’s something we are really excited about and will be launching it imminently. We have only really confirmed the general idea that we believe having artists help us build the service builds the ecosystem for everybody.
If artists can get their fans onto Rdio, we are happy to pay them just like we would pay any other affiliate; but this is a special relationship in the sense that we believe they are pre-qualified users who are more apt to subscribe.
This is not about trying to disintermediate the relationship between artists and labels at all. It is just saying to artists that we will compensate them for bringing us users and for the more users they bring us they will make more money directly on that; but they will also build a bigger subscriber base who are more likely to listen to their music on Rdio, which means they will be paid more from the streams that are happening on the service. So it’s a win/win for everybody.
The official launch hasn’t happened yet and we are hoping to get it out there officially with a big announcement in the coming months.
There was an argument that if acts get, say, $10 from selling a sub to fans, that’s more money than they’d make from streaming for the rest of the year.
When we get to levels of scale, with each service getting to 5m or 10m subs, the artists will see real returns when we get to that level of scale. This is a programme to help us get there.
How does windowing work? Acts like Adele and Coldplay kept albums off streaming services, partly to protect CD and download sales. Do they see streaming as the poor relation here?
By and large we are getting content day and date [i.e. on the same day the physical and download versions are released]. There are exceptions and it’s hard for us to control that as we don’t have direct relationships with artists – but the goal is that, as we grow, there is going to be less incidents of that happening as artists are going to want to have their stuff on streaming services on day and date. That is because they will believe, I hope, that as we get to scale the revenues are going to be there for them.
What about acts pulling catalogue?
Record companies certainly believe in streaming. They wouldn’t be licensing all these different services if they didn’t think this is where the business is going. For artists it’s a matter of time. There are big exceptions, but by and large, we have 18m tracks. That’s a hell of a lot of tracks and most of the stuff you want to listen to is there. I admit there are some big bands I’d like to see on Rdio but the exceptions are few and far between.
Is there a direct correlation between anti-piracy measures, or the threat of them, and uptake of subscription services?
I don’t have a lot of data to back that up as it’s all anecdotal, but in my mind with a service like ours you are making it easier to consume music in a very simple and compelling way. I’d sound naïve if I said piracy was going to go away altogether. It’s still around and there is still a segment of the population that doesn’t want to pay for music but as we make it easier and better and more compelling to subscribe to services like ours, more and more people will move in that direction.
What role will bundled subs have here – like Cricket and Muve Music in the US and Orange and Deezer in the UK and France?
It will continue to have a big role. We have a partnership with Oi in Brazil, one of the big carriers there and we are working on a bundled deal with them. We are looking at ISP bundles here [the US] as well as overseas. One of the things we’ve done that is pretty interesting is our partnership with DMG Radio in Australia. They wanted to marry an existing broadcast platform with a digital streaming service like ours. As much as people criticise radio and say it’s heading the way of the dinosaur, it’s still a huge medium for people to discover music. To be able to marry what we are doing with what they are doing is really interesting and we are looking to replicate that in other territories around the world.
If Apple moves into streaming, is it game over for you and everyone else?
They certainly could. They are the market leaders in digital music without question. While Apple is a behemoth – the mostly highly valued company of all time – it’s not the be all and end all. A lot of people can’t afford Apple devices or choose other devices. But the one thing I would say is that Apple simply using the word ‘cloud’ is to us, and I know this sounds counterintuitive, a help because it gets people used to the notion of cloud-based access. That’s where we want people to move to anyway. Apple is obviously still wedded to ownership and the sale of devices with large storage – that is their bread and butter. But they have made a step in that direction with iCloud and iTunes Match. You can’t ignore it.
What do the next 12 months hold?
More territorial releases. By the middle of next year we hope to be in 20-25 territories. The next thing we are focused on is a big marketing push. We haven’t done any brand marketing over the two years we have been live. We have done a lot of digital marketing, but not a coordinated marketing effort. We are now putting a lot of resources behind doing a big push in the US in Q4 and then having a similar marketing push in the UK and Europe in Q1 and Q2 of next year. From an awareness standpoint I think it’s going to dramatically change how many people know about Rdio.
Why was there no marketing before?
It was figuring out where we wanted to be. We lead with our product and we have expended most of our resources on building what I believe to be the best product in the market. We continue to lead with that. We wanted a large enough footprint where the dollars we were going to spend would be spread out over a large enough number of territories to get the bang for the buck that we wanted.