More ads, lower music costs make Slacker "gross margin profitable" on every listener, it claims

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Issue Date: 
May 13 2013 - 10:55am

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Webcaster and on-demand subscription service Slacker last week revealed it's reaping the fruits of its February relaunch in the form of surging audience growth. The company also claims it's attracting Pandora users shut out by that company's recent 40-hour/month listening cap on free mobile streams.

What's more, CEO Jim Cady says his company is "gross margin profitable" on every listener in part because "direct" royalty deals have made it less expensive for Slacker to license music than for its competitors.

In a press release, Slacker says since its February relaunch (including a redesign of its web site and mobile apps), more than six million new listeners have registered, including over 100-thousand paid subscribers. And the amount of time the average user listens has jumped 25%. Among new listeners, 3.5 million listen via mobile devices. Its user penetration on Apple devices has more than tripled.

Slacker partners for content with ABC Radio. Its general manager Steve Jones told USA Today, "Our audience has grown 3% to 4% every week since February. We're thrilled."

And they're ready to bring on even more users. According to paidContent, Slacker is close to sealing a deal with "a major telco provider" -- a move Cady predicts could be worth "millions of paid subscribers" to his service. Last week we covered news (here) that Slacker had entered a partnership with Vodaphone which would enable them to enter the UK market, but it's not clear if this is the deal of which paidContent wrote.

Early in March, leading webcaster Pandora announced, as an effort to reduce music royalties, it would limit mobile listeners to 40 hours per month of free, ad-supported listening (paid listening by subscribers is not limited, nor is listening on Pandora.com). While services make significantly less on advertising to mobile listeners, music licensing costs remain the same -- meaning heavy users of free ad-supported mobile streams are hardest to monetize for webcasters.

Cady says his service has gained listening partly due to Pandora's move. Adding to that, he tells numerous sources (like VentureBeat), Slacker's "proven business model" enables Slacker (unlike Pandora) "to monetize users with free accounts" -- even mobile users.

First, Slacker simply runs more ads than Pandora. Wedbush Securities analyst Michael Pachter explained this to USA Today: "Slacker is one-sixth the size of Pandora, and both run ads. Slacker does three minutes per hour, Pandora one per hour. It's that simple."

But perhaps even more interesting is that Cady (pictured) says his "direct deals" with record labels and publishers save the company big money. Slacker told Evolver.fm it doesn't pay SoundExchange -- the music industry body that collects and distributes royalties for those services that operate under statutory licenses. Slacker claims their direct deals enable them to pay a lower royalty than do SoundExchange customers (like Pandora).

Slacker, which launched its digital music service in 2010, has raised $50 million in investment. The company also recently expanded its operations, opening offices in Palo Alto, CA and New York.

Read more in coverage from paidContent here, USA Today here, VentureBeat here, and Evolver.fm here.

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