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The Slacker Dilemma

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Start-up founders by nature are risk takers, willing to face insurmountable odds in their attempt to disrupt the old guard.

But no company faces more adversity than Slacker Inc., an Austin, Texas-based personal music start-up that launched late Wednesday. It is hard to shake your head at the odds against this company. Good luck to them, because they’ll need it.

The company’s three co-founders have a digital music pedigree that is unrivaled – Dennis Mudd, who started Musicmatch, a music service that was acquired by Yahoo, Jim Cady (from Rio) and Jonathan Sasse (President of iRiver America).

The company describes its service as “personal radio” which allows customers to listen to music anywhere, as long as there is a browser. The company will sell portable players that are Wi-Fi enabled and have satellite radio connectivity built into the devices in the second quarter of 2007. The devices will cost $150-to-$300 depending on the storage capacity.

The service is free if you are willing to put up with advertisements and a pause after six tracks. Otherwise you might have to cough up $7.50 a month for the premium offering. Slacker has received a lot of coverage from various outlets ahead of its official launch, a move that is reminiscent of Sasse’s marketing attempts to position iRiver in the U.S. market.

To recap: Slacker is competing with satellite radio companies, personalized music subscription services such as Napster, Urge, Real Networks and if that wasn’t enough device makers such as Creative, SanDisk and the big bad Microsoft. Then there are upstarts like Pandora and And that list doesn’t include the happy shiny iPod and whatever Steve Jobs is cooking up in his basement these days.

The 2007 Florida Marlins have a better shot at the World Series than Slacker does against the rest of the music league. And now let’s talk about the practical challenges:

1. Sirius and XM spent billions and still had to merge to build a meaningful business out of satellite radio. Their subscription numbers – 14 million after years of sustained losses.
2. Real, Napster, Urge and everyone else peddling subscription services have yet to cross the 10 million subscriber threshold, and profits are something those companies don’t talk about.
3. People equate iPod with digital music, so selling hardware – an expensive proposition anyway – is not possibly the wisest move.
4. The Web music royalty fiasco is only just getting started.

We understand that Slacker is a wee bit of everything and still trying to be different. As one smart man just emailed and said, “Slacker is trying to be transistor radio of today, but to do that their price point will need to come way down.” What he didn’t say, where would the money come from? Ads – if yes, then they better do audio and display ads; otherwise they will continue to lose money.

A former digital music industry source of ours who has washed his hands of the music mess says while Dennis is the man, “No amount of money would put me back in the music licensing business.” Another digital music business source talking on condition of anonymity says that the cost of goods (i.e. cutting deals with record labels) can be seriously injurious to a company’s profitability.

Don’t blame me for being a tad pessimistic about the odds of this company – but then fortune favors the brave. Especially if they have tens of millions of dollars to spend on their dreams – even if the dollars happen to be other people’s money!

10 Responses to “The Slacker Dilemma”

  1. Who knows? Maybe the halo of Austin will guide them past all these obstacles.

    Always interesting to see a new approach – but there isn’t a whole lot I’m missing from my iPod/iTunes experience — at least not that didn’t fulfill.

  2. As a Sirius employee, I can say that they are definately in line with the modern market, and will stand more and more of a chance as time passes. The only issue, as with any entertainment service, will be gaining the necissary capital to provide the service completely and at a low price point. I wish them the best of luck, and who knows, maybe they’ll earn a place on our service :P

  3. Granted there are a lot of players in the digital music market. Yes many of those players are giants – folks that have been around the block and swing a wide berth with their established profile. The thing is, it seems, none of them has found the “magic formula” for digital music broadcasting. I mean, the whole subscription based, niche market satellite services just don’t appeal to me – they don’t have the simple low maintenance appeal as just turning on my FM radio and having access to a free and wide range of public air waves. Podcasts are cool, but again, they require some real work to get to. I mean, if there really was something that truly worked – the magic formula, would there be so many players in the market? So, yea, lots of guys scrambling to get it right. Hopefully, the new kid on the block will pick up the slack.

  4. Ben Marklein

    Re: “The Web music royalty fiasco is only just getting started.”

    That’s not an issue for these guys. They have licensing deals with the labels. The royalty rates only apply to companies that are using the statutory license available under the DMCA.

    For anyone who might not be aware, the DMCA says that webcasters who follow certain rules (e.g., you can’t play more than 4 songs from a given artist in a 3 hour period) qualify as a “non-interactive” service and are entitled to a statutory license at fixed rates. But you’re always free to negotiate separately with the labels. In Slacker’s case I don’t think they even had the option to use the statutory license because they’re a satellite service. They probably also wanted to do some things that would qualify them as “interactive” under the DMCA.

  5. I LOVE IT! that’s true entrepreneurship when you “screw” the VC thinking of focusing on 1 single very focused product, and just go with your thoughts and what you think is best.

    All the best to the boys, and if they fail they are still high up on my list.

  6. definitely an uphill battle, but don’t discount the impact of offering something people want. sure there are all the competitors you mentioned, but maybe none of those satisfy me and slacker does. curious to see where it goes.

    minor note, the company is Broadband Instruments, not Slacker Inc. and it’s out of San Diego, not Austin.