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Sirius XM reports record earnings, lowers guidance, raises rates

Friday, October 25, 2013 - 11:45am

From the department of mixed messages, Sirius XM reported record earnings on yesterday’s quarterly call, predicted disappointing earnings for 2014, and handed a rate increase to subscribers. SIRI stock is down over six percent on Friday, as of this post.

The third quarter was positive for the satellite broadcaster, showing year-over-year revenue growth of 11 percent, and subscriber growth of 9 percent over Q3 2012. Good wind for sailing forward? Well … the company shaved nearly $200-million off the average $4.17-billion revenue estimate Wall Street predicted for 2014, and handed a price increase of six dollars per year to its 26.5-million subscribers. The street isn’t over the moon about the lowered forecast, but favors Sirius XM’s confidence in hiking rates for only the second time since 2008.

Satellite radio faces the future with enviable advantages, and strengthening competitive headwind -- especially in the car. Most new cars have factory-installed satellite receivers, and offer months-long trial subscriptions designed to addict new listeners to the Sirius XM service. That distribution tactic plays out to a 45-percent conversion from trial to paid subscription. Historically, satellite’s increasingly entrenched position in the dashboard has disrupted AM/FM’s traditional reign in the car, forcing it to share built-in dash territory.

Going forward, Internet-connected dashboards offer an expanded suite of built-in listening choices. Even disconnected head units that permit smartphone plugs insert a competitive wedge between the driver and what comes through the car speakers. Pandora is the leading IP-delivered alternative to both AM/FM and satellite in the car, and many other options (including iPod playlists) cater to fine-tuned user customization better than one-to-many broadcast models.

INTERVIEW: Jim Lucchese, CEO, The Echo Nest

Wednesday, October 23, 2013 - 11:35am

You might have The Echo Nest to thank for the thing you love most about your favorite music service.

The Echo Nest is a data company that develops music intelligence technology, used by many of the most popular listening services covered by RAIN every day. Through the company’s application programming interfaces (APIs), music services can develop apps and features for their users, such as song recommendations and artist-based stations. The Echo Nest has furnished music intelligence for Spotify, Rdio, MOG, iHeartRadio, Xbox Music, and many others.

RAIN spoke with Jim Lucchese, CEO, about The Echo Nest’s influence over the streaming music experience. This is Part 1 of a two-part interview.

RAIN: It seems The Echo Nest is the hidden lynchpin that informs many people’s experiences with interactive music and music services. Is it fair to say the The Echo Nest is the main determinant of what most people hear in popular music services?

JL: It’s certainly what we’re aspiring to. There’s still a lot of work to be done, first from the standpoint of customer adoption -- we’re not powering every [service], but we’re powering many of the players.

The area where I feel there is still a lot of work to do, is to work with our customers to help make streaming music truly a mainstream experience. In the last 12 months there’s been massive progress in bringing streaming consumption to the mainstream, but we’re still in relatively early days. I see our role as making the cold-start experience for a first-time listener exceptional, and making the personalized experience so intuitive, that when someone tries it they never leave. I think we’ve been very influential, and I think we’ve got a lot of work ahead of us.

RAIN: Besides providing technology, how do you do advocate for streaming music?

JL: We drive adoption by enabling the best listener experience. We are obsessive about that.

Another aspect of evangelism -- we’re betting on app developers. They are the architects of how we consume music today. This is one of the most exciting parts about the space.

Think about terrestrial radio: it requires a massive investment, and new market entrants are few and far between. In digital, making changes to the listening experience on a mobile application can come from anywhere. A couple of developers from nowhere can avail themselves of compulsory licenses under the DMCA, build an app, and get it out there. I’m not saying it’s easy to go from there to a whole business.

But we built what I think is the largest music hacker community out there, about 30,000 music hackers building on our API. We’re trying to build a community that our commercial customers are part of, and can tap into. That’s where a lot of the next generation of integration is going to come from. Some of it may come from guys who work here full time. But it’s also going to come from [external] people using our API, building stuff we never thought of.

On the evangelism side we are directly consumer-focused. But bringing together that community and facilitating connections to the larger established media companies is an important goal of ours.

RAIN: That leads to an inevitable question: Will The Echo Nest ever consider launching its own music service?

JL: We sure have considered it, many times. It’s really not in the plans. Our reasoning is largely driven by staying focused on our strengths. We’re a company in Boston run by a lawyer and founded by two PhD’s. We’re not a consumer-facing media company. We’re music data dorks.

When we looked at the data opportunity, we thought the business opportunity was being the dominant player in the intelligence layer between people and their music. It’s a massive opportunity. We looked at our strengths. We’re in a great position to define that market and dominate it.

When you look at what it takes to build a consumer-facing service, there are a lot of core competencies that are outside of our scope. We really felt that there was a huge biz opportunity in being that intelligence layer, enabling lot of innovation and diverse applications.

An additional piece -- we’ve got a nice business here. It would cause us to lose focus, and probably be confusing to the market if we were to take different paths.

RAIN: Speaking of data dorkness and domination, there is the audacious banner on your website. It advertises that you have over 1B data points stretching across 35M songs, recorded by 2.5M artists, on 431 applications. Do you have any meaningful competition?

JL: Sure. When I think about competition, I really think about two things. As digital music and streaming become more mainstream, you see some of the largest technology companies in the world starting to invest more [in that direction]. In those cases, our competition is making a case that working with us is considerably better than in-house development for companies with limitless engineering resources. They don’t ”get” music. There are about 12 people who graduate with advanced degrees in music information retrieval every year.

RAIN: Wait -- there’s a degree for music information retrieval?

JL: Oh yeah, and we’ve got five of them with PHD’s who work here. There is a scarcity of "depth-of-domain" expertise. I think a lot of companies look at this as a data problem, not as a “domain understanding” problem -- understanding content and culture of music. That education process for companies that are strong in data engineering, is one area that I see as competition.

The other area that I worry about is the next Echo Nest. The next group of really smart, completely music success guys, who have the next disruptive idea. Sooner of later they’re going to be coming, as the space continues to grow. Venture capital, on the data side, is easier than it was when we started. At this point, there’s nobody that I put in that ballpark, but that’s what I think about in terms of future competition.

RAIN: When you say “big players,” you probably mean Apple, Google, and Microsoft. Do you work with any of the big ecosystem companies?

Funny you should mention that. Our first peek of a product collaboration with Xbox launched this morning [last week]. The feature is called Web Playlist. It allows you to create playlists when you are on any site that features an artist or band. [See RAIN coverage here.]

RAIN: That seems different.

JL: [Xbox Music engineers] leveraged our artist extract capability. We’re parsing the text on about 10M documents every day. We can look at a block of text and identify the band names -- we analyze much more than band names, but they pulled the band information and matched it to their playlist technology, which automatically builds a playlist based on bands mentioned on a web page. This is something we envisioned, but these guys took it much further.

It’s a pretty cool implementation. We've talked about hackers, people who are pushing the envelope -- well, there’s a crew at Xbox Music that comes from that world. It’s a good example of that working in a commercial context.

Look for Part 2 of RAIN’s interview with Jim Lucchese tomorrow. In it, we ask The Echo Nest CEO to compare his computer-modeled music analysis with Pandora’s Music Genome Project … and also what’s playing every day in The Echo Nest office.

Apple announces 20-million iTunes Radio users; fuzzy math abounds

Wednesday, October 23, 2013 - 11:35am

After launching on September 18, simultaneous with the release of iOS 7 and baked into that mobile operating system, iTunes Radio has attracted 20-million users. Apple announced this milestone in a live product event on Tuesday.

Many media outlets are positioning the datum as a comparison with Pandora’s latest audience metrics report, which claimed 72.7-million active users in September. But quick conclusions of impending doom for Pandora, while not without speculative value, often disregard audience measurement realities.

The crucial distinction is between unique users and active users. Pandora does not disclose how it determines a threshold for active usage. But in all traffic and audience statistics, some level of repeat visitation is needed to turn a unique visitor into an active user. By the same token, Apple is not disclosing how many of the 20-million uniques are repeaters.

All repeat visitors are unique within the time period of their activity. But not all uniques are active with more than one visit. There is no industry standard for measuring loyalty, or a level of brand stickiness indicated by active usage. Slightly more than one month after launch, iTunes Radio might and might not have enough history for Apple to develop an internet metric of active usage.

One thing is clear: Apple is not announcing “active usage,” and comparing the “uniqeu” metrics with Pandora’s “active” metric is fuzzy math.

QUICK HITS: Merlin and Pandora execs speak out

Tuesday, October 15, 2013 - 9:55am

Merlin CEO criticizes label deals: In a conversation with Janko Roettgers of GigaOm, Charles Caldas, head of prominent indie-label consortium Merlin, points to a basic aspect of business modeling behind Spotify, iTunes Radio, and other major players. The advance payments to major labels, Caldas warns, sets up an unsustainable situation for small labels that are excluded from broad dealmaking. Caldas expands his thinking beyond Merlin’s constituency; he thinks music services are being set up by for failure by the labels.

Pandora CFO holds forth: In a CNET interview, Pandora CFO Mike Herring delivers crisp C-level talking points about Pandora’s business and ongoing royalty controversies. No breakthrough knowledge to be gleaned, but the interview provides a concise summary of Pandora stance. On royalties: “It’s not about lowering rates -- that’s about creating fair rates across lots of distribution channels.” On Apple’s launch of iTunes Radio related to the cost of doing business in the streaming space: “It took someone, frankly, with a lot of cash in the bank and a big income statement like Apple to finally launch a competing service.” 

Sirius XM offers cheap re-subs and continues to climb

Monday, October 14, 2013 - 11:25am

It's a rising tide. While Pandora, iTunes Radio, and other IP-delivered music services build momentum, Sirius XM continues to disrupt AM/FM’s automotive presence, with enviable subscriber numbers. As Tom Taylor notes in his NOW newsletter this morning, “Sirius XM recently passed the 25-million subscriber mark, and its stock hasn’t traded this high since early 2006.”

Distribution is the key driver. Satellite radio was developed specifically for the car, where Sirius XM now enjoys a widespread installed base -- nearly seven out of 10 new cars have Sirius XM on board, according to Seeking Alpha. The company also furnishes an online component, in a reversal of the distribution order of Internet pureplays like Pandora, which started online and pushed its way into cars secondarily. (Sirius XM also offers stand-alone receivers.) Many new-car buyers discover SiriusXM’s diverse and star-studded programming with free introductory trials that last for months. An impressive 45 percent of those buyers convert to paying subscribers. (Pureplays take note: it can take MONTHS to habituate new users to a listening service … not days.)

To capture subs that have fallen off the grid, Taylor notes that Sirius XM is offering a six-month re-subscription for $25, total. Normal subscriptions cost between fourteen and eighteen bucks a month. 

That’s smart business, but the smartest part of satellite’s success has been hitching its fate to the car. Internet pureplays are not oblivious, and they are all scrambling for position in the connected dashboard. When they get there, they find competition from two staunch legacy forces: broadcast and satellite.

Anticipation builds for Beats Music

Thursday, October 10, 2013 - 11:00am

Every few days rumors are published about the impending launch of Beats Music. We know it will be soon. We've heard that there will be a subscription component -- possibly all-subscription, like Rhapsody and Google All Access.

We don’t know whether Beats Music will be any good. Well, it’ll be good. We don’t know whether it will be a standout in the crowded field Beats is entering. The service will launch within months, and The Next Web reports that The Echo Nest is involved in creating the recommendation engine. Echo Nest is the tech company that white-labels Internet radio curation for Rhapsody, Spotify, and other leading brands.

Luke Wood, Beats Music president, has promised an acutely personalized and expertly curated listening environment. All the lean-forward platforms promise that, and honestly, delivery on that promise is pretty good. Pandora has some extra mojo for many listeners, but iTunes Radio, Spotify, Rdio -- they all produce a customized Internet radio experience across a huge catalog that was unthinkable not too many years ago

So the question isn’t when Beats will come to market, or whether it will be personalized. The question is whether the product development truly contains innovations that will set Beats apart from the pack. Because inducing users to stick around after the trial period is getting increasingly difficult.

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