June 4, 2013
As innovative as he was, Steve Jobs wasn't always right - especially the time when he publicly asserted that people wanted to buy music instead of "rent" it through a streaming music service. Fast-forward to today, where a growing number of music streaming services already or will include operations by Google, YouTube and yes, even Apple.
One of the earliest music streaming services was Slacker, which after a recent re-tooling, is growing by leaps and bounds. With six million new users within the last three months, Slacker is set to unveil something that will definitively illustrate how engaged its audience is to the music. Slacker SVP/Content Programming and Strategic Development Jack Isquith, who has been involved in the digital world for over a decade, explains how Slacker has created a successful foundation in the tumultuous music streaming service battlefield.
Before joining Slacker, you worked at Warner Bros. From your vantage point there, was it true that the labels were way behind the curve when the digital era hit?
I worked at Warner Bros. for four years, from 2007-11, and before that I worked at AOL Music and CD Now. But by the time I went there, the industry was doing a pretty good job of realizing that their business model needed to change. Of course, in the previous half-decade, I'd say from 1993-2003, the labels had been slow to adopt a digital mindset, and were a bit paralyzed by Napster and the wholesale illegal downloading era, which lasted until the middle part of the last decade.
Now, we're in a period where we're beyond thinking that the business has got to change. The labels have changed and have gotten into partnerships and relationships with companies like Slacker. They're showing increased flexibility to deal with the changes in the business.
So why did you go to Slacker?
I got fired from Warner Bros. in 2011, which was a function of the changing economics. Just how many executives can a label have, given the current economics of the music business?
For me personally, it turned out to be a great thing because, at the time, it opened up world of possibilities. At that moment, of course I needed a job; I wanted to move forward and be a breadwinner for my family. I was forced to decide what I wanted to do next. I wanted something that would give me a direct link to the audience. I had that experience at AOL Music, and I missed the ability to be creative and have a direct relationship with the audience.
I made a decision that happened to dovetail with what Slacker needed to do. I had used Slacker and felt it was a groundbreaking service that was serving its audience better than any of the other streaming services, so when they called me about a job, naturally I was interested.
What are the biggest challenges facing Slacker?
Awareness. The biggest challenge we have is just awareness. We always think we have to get better every day, and I think we have done that, day in and day out. We're building a great brand of being the most complete music service. Now, our biggest challenge is not unlike what's challenging the music world and entertainment in general. In 2013, people are bombarded with so many choices and messages on how to spend their few hours of discretionary entertainment; our biggest challenge is simply cutting through all that clutter and getting people to know Slacker -- then have them compare it to the other services. We have 10 times the music Pandora has; we have news, sports and weather channels, and our music is curated by human beings - not just an algorithm. If we can get people to try Slacker, we tend to do very well.
When you say "awareness," are you referring to more advertising on TV and other platforms?
In the digital age, those marketing lines have been blurred. In the old days, when you're talking about a terrestrial radio station, it would only be worried about marketing to one market. But when you're talking about a national service like Slacker and the way the Net works - where everything is just a click away - it makes the competition for people's attention even more difficult. It's not just straight-ahead marketing anymore; it's everything. To grow a digital business, you need distribution partners, a social footprint, traditional marketing and public relations.
It's funny; many of us who have been in the digital for the past 10-13 years believe our business is in a mature phase. But the average person is just starting to wake up to the fact of, "Oh my God, we can go on the web or to our smartphone and in a couple of clicks, we could have our choice of 13 million songs or 250 stations!" The average person is just finding out about that. That's why awareness is still one of the biggest parts of our challenge; we're still in the early days of reaching a large part of our audience.
Yet all these music services - and more to come - are not profitable yet. How do you see Slacker becoming profitable, considering the competition and the cost of doing business?
At Slacker, we have a different business model than all of our competitors. Our business model combines a basic radio tier with commercials and two subscription tiers, one called Radio Plus and one called Slacker Premium Radio. We love our business model in that the only reason Slacker is not in the black today is because we're still pouring money back into the company for marketing to grow our subscribing listeners. I absolutely see a path where our business model becomes profitable.
What mix of customers - free commercial channel or subscriber channels - would generate the most revenue?
The ultimate goal is to eventually move as many people possible to a subscription tier. Our main goal is ideological - we want everyone who comes in our door to have such a good experience that they want to become a subscriber. We want them attached to our brand. Of course, some people will still be happy not becoming subscribers, and that's fine. We're always looking to move people to subscription because that creates the biggest brand affinity.
How do you plan on getting the free users to become subscribers?
Similar to my answer on Slacker's biggest challenge, there's so many different levers to pull to getting a subscriber. There are a variety of different buttons to push; some are tactical and some are emotional.
One fly in the ointment for music streaming - at least from many artists' perspective - is that they feel they aren't being compensated nearly enough for their music. Do you expect future negotiations over use of their music to be more contentious, and what would you say to artists now?
On that whole issue, the challenge is in giving back value to the artists, the people who create the music. We understand and have a lot of empathy for musicians, and we believe that there's got to be away to create as much value for their work as possible - and we're committed to doing that.
There are two big things going on here. One is the misunderstanding of the way the music business really is in 2013 - and that is the old business model, where people go to a record store buy and album based on songs they heard on the radio, is essentially dead. A handful of companies, such as Slacker, are trying to push a new, legal positive business model to grow the business back up from the heyday of Tower and Virgin Records stores. Now, the business has to be done through access to music, not just ownership of music, and we'll continue to build many ways to generate revenue through that.
It comes down to audio methodology -- radio airplay, historically, has been the single best way for artists to grow their careers and make money. That's why it's very much about keeping a human element on top of the algorithms. We're giving tremendous value back for every new person who comes in the door at Slacker, whether that person becomes a subscriber or not. The key to generating more revenue for artists is to create a very positive relationship with the consumer. That will help us grow the number of people who use Slacker, and in-turn grows the revenue for musicians.
With Google opening its own streaming service and Apple rumored to be launching one of its own, you'll soon be competing in not just a more crowded field, but against two of the biggest brands in the world. How do you see yourself competing against them?
That's a really interesting question. It's true that Google's service just started, and that Apple and probably YouTube will also have their own services up and running before long. These are gigantic brands with deep, well-funded pockets. First, we look at that and say, "Wow, they're basically validating our business model." We also know that a company pouring a lot of money into something in no way guarantees success. Look at the history of digital music and entertainment. Social media came out of nowhere. MySpace used to be the king of social media - well before it had News Corp. money behind it. Facebook was a start-up, not a monolithic corporate player trying to get into social. Apple's Ping social service, on the other hand, was stillborn. So having deep pockets is far from a guarantee of success.
Now you look at terrestrial radio, where you have Clear Channel and iHeartradio. That's a robust company with deep pockets and great distribution in terms of all their terrestrial stations. Yet our growth has accelerated since iHeart launched. And every day Clear Channel tells millions of people go check out the concept of Net radio; that has been good for Slacker as they're welcoming people into our space. It creates more awareness of services like ours.
So against not just those giant brands, but Pandora, Spotify, Rdio and all the rest, what will be the keys to Slacker's survival and success should a "thinning of the herd" occur?
Two things. First, day in and day out, we think about the audience first, by asking, "Are we creating a listening experience that's delighting people?" Second, we're very data-driven in terms of metrics, how sticky is the site is and how engaged is our audience. What's the passion point of our audience? That's what we focus on the most.
That's not to say we overlook other business fundamentals. We take great pains to shape a business model that allows us to have everyone coming in as a net positive, but our big thing is how engaged our audience is every day, day in and out. We look at what else we can do to really engage our core audience. Slacker picked up six million new listeners in just the past 90 days. That tells us we're on the right path with what we're offering, which is a combination of human curation and data science with the right algorithms. That's why we keep doubling down on what we're doing now.
We don't know what's going to happen in the marketplace. There could be a narrowing of the services in the next five years, but there could be more people who think they can succeed by doing this. When we look at our place in all this, since we re-branded and launched new consumer experiences in February of this year, our accelerated growth has shown us that we're on the right path.
Speaking of data science, Slacker is about to publicly offer new audience engagement data. What brought this on?
We took a look at all the current data and research, and found that most of the research for the music industry and terrestrial radio is either broken or incomplete. Most of the charts are functions of either sales or spins and streams. Those may be important, but they have pitfalls. For instance, we have found that sales charts aren't really indicative of consumer engagement. We're seeing an increasing amount of people engaged with music, but they're not purchasing music the way they used to. Album sales are no longer fully indicative of a song's or artist's popularity.
Then we looked at terrestrial radio research such as callout and ratings such as the PPM - both have very small sample sizes, and judging consumer reaction to a song off a seconds-long hook is no way to measure how engaged people are to a song or an artist.
What we're doing is looking at all of the 13 million-plus songs in our library and analyzing our audience's listening experience. On every song they choose, a number of things happen that enables us to generate data on just how engaged they are with the song and artist. There are positive reactions: Did they start the song themselves? Did they let the song finish? Did they "heart" the song, or share the song on Facebook, Twitter or e-mail? These are all data points. Conversely, there are negative reactions: Did they change or skip the song? Did they ban the song or artist? Did they change the station?
We look at all these things and use it in two ways. First, the data is incorporated into our algorithms, to get a much better handle on what our audience wants and how engaged they are with the songs. Secondly, we delve into these numbers to create a real different snapshot of the music, one that's more thorough and interesting in ascertaining just how engaged people are to certain songs.
How do you plan on presenting this data?
We've developed an algorithm of that data and are calling it The Slacker EQ, which will be published on our blog every week. It will list the Top 40 songs across the entire service, all based on the audience reaction through those data points. Then there will be genre breakdowns, also published weekly, in Alternative/Indie, Hip-Hop/R&B, Country, EDM/Dance and so on. That way you can sort through things in a more traditional format way that's going to be very transparent.
Who exactly are EQ's charts for - the public or the labels?
There are a few reasons we're doing this. One reason, as I mentioned before, is that we feel the current data out there is broken, and this is a better way of evaluating the true popularity of songs and artists. We certainly recognize that we'll get interest of the labels, managers and others in the traditional music business. We feel this data will not only be good for Slacker, but for the music business as a whole.
Another part of our motivation for doing it is to take this info and formalize our algorithm to help us program better. In the spirit of transparency, we're using this to improve our pre-programmed Slacker stations. Now we can show what our thinking is and how we combine the human element with science from the data. That's a positive message to send.
The third thing is that this can be very interesting information for people who may not be in the traditional music business, but are interested in getting a better read on artists. This is not just for the record labels and the traditional music business interests, although we do want them to get more involved with us. We just feel this is a more thoughtful way of measuring data all around.
Obviously, your algorithms and data are proprietary information. But could you foresee a time when this could be applied to all streaming services to create a comprehensive, real-time picture of what's actually going on in digital music commerce?
True, our algorithms are proprietary in that we're focusing on data that measures engagement in a different way - that's even different from our digital competitors. That's what's unique about Slacker, but we also feel it's a good way of evaluating how engaged people are to songs and artists in 2013, so we expect EQ to get traction and for other services to copy us and sign on to the idea of changing the "popularity" conversation. Leading this change, from our vantage point, is positive. While the "secret sauce" of putting our algorithm together is proprietary, we expect it to attract attention from others, who'll try and copy it.