Here 8tracks' David Porter takes a moment to explain 8track's shift in a new direction towards their 8tracks+ subscription model and the broader impact this alteration will have the 8tracks community as a whole. Along the way he provides some lessons for all music tech startups.
Guest post by David Porter of music streamer 8tracks
In the coming weeks, we’re going to shift our focus in the US to our 8tracks+ subscription model, including the introduction of a listening cap. I’d like to take a moment to walk you through the background, our gameplan, and the impact on our community.
The problem: the economics of streaming music
Streaming music on the internet is expensive. So expensive that, to date, no digital music service is generating a profit. Larger services have raised billions to fund continued losses, but even with our recent crowdfunding, 8tracks has raised only $5m over the last decade. We want to build a sustainable business that doesn’t require ongoing VC funding.
We’ve historically relied primarily on the sale of advertising to generate revenue for 8tracks. The ad model works best for a service with a large audience, as brands and agencies would prefer to work with relatively few apps or websites in a particular category so their efforts aren’t spread thin. We’ve found that when we lose ad deals, it’s typically because of our audience size. As a result, it’s been difficult to generate a consistent level of revenues from one month to the next. On the other hand, in the US, we pay a high fixed royalty rate on a “per track, per listener” basis. (In Canada, this rate is one-tenth that in the US.) Our US royalty is the same rate paid by Pandora, which — thanks to its larger audience and sales team — brings in four times the ad revenue per hour that 8tracks is able to generate.
Over the past four months, our community has rallied behind us, raising $2.5m to help power our future. However, the round is half of our $5m target for crowdfunding, likely not enough to fund the growth necessary to make the economics of a primarily ad-based internet radio model work in the US, given the prevailing royalty rates.
Our solution: diversify our revenue base
Historically, we haven’t placed much emphasis on promoting our 8tracks+ subscription, but we believe it represents a big opportunity for revenue growth. Our average revenue per user (ARPU), on a monthly basis in the US, has trended at $0.12; our current 8tracks+ price point is $2.99, a 25X difference. If a meaningful proportion of our listeners subscribe, and we limit the amount of streaming (and thus royalty expense) for ad-based listeners, we can return 8tracks to profitability over the course of the next year.
To ensure 8tracks can sustain itself with its current level of funding, we’ll introduce both limits on free listening and benefits for paid listening over the coming year. The cool things in the latter bucket — more skips, offline listening, full DJ library access — are dependent on our direct deals with labels, and we’re not yet in a position to offer these as part of 8tracks+. The less cool things in the former bucket — more ads, interstitials that stop playback between mixes, weekly limits on the number of hours a free listener can stream — will be introduced in early November to encourage listeners who tune in a lot to “pay their way” directly and to cap our royalty costs for those who do not.
How will this affect investors in our crowdfunding round?
If you’ve already contributed cash to 8tracks by investing in our crowdfunding round, you will automatically receive 8tracks+ in perpetuity — for life! — which we’ll apply to your account within 30 days.
How will this affect our DJs?
Similarly, if you’ve contributed your time and passion to 8tracks by creating awesome playlists, we want to ensure your contribution is properly recognized:
- Any DJ who’s earned the equivalent of a Gold certification (100 likes) — on a single mix or across multiple mixes, on a cumulative basis — gets 2X the normal weekly listening limit
- Any DJ who’s earned the equivalent of a Platinum certification (1,000 likes) — on a single mix or across multiple mixes, on a cumulative basis — gets 3X the normal weekly listening limit
- Any DJ who’s earned the equivalent of a Diamond certification (10,000 likes) — on a single mix or across multiple mixes, on a cumulative basis — gets free 8tracks+ in perpetuity (just like an investor)
To check in on progress toward these milestones, DJs will be able to view their cumulative like count across all mixes published. Also, DJs will continue to have unlimited, on-demand access to any mixes they’ve created solely through personal uploads.
How will this affect our listeners?
US listeners who do not subscribe to 8tracks+ and who haven’t invested in our crowdfunding round will be limited to a prescribed number of hours per week. We haven’t yet finalized the threshold for this listening cap, and we’ll be testing the impact of several different caps for the first few weeks after launch. Of course, a listener can remove the weekly listening cap as well as interstitials that stop playback between mixes and all ads by subscribing to 8tracks+.As a result of substantially lower local royalty rates, listeners in Canada will not be impacted by the listening cap or interstitials but, as before, can subscribe to remove advertising.
While we wish we didn’t have to introduce limits on ad-based listening, we’re pleased to be able to offer a better user experience for all investors, many of our DJs, and a growing number of our devoted listeners, all while ensuring a healthy future for the service and community.
Thank you for continuing to support 8tracks!