Monday, March 24, 2014

Streaming Internet Radio Becoming A Minefield of Competition

Quick Thesis

  • Streaming internet radio/music is filling up with competitors which will make this a very difficult market segment to predict a clear winner.

Before we analyze the competition inside the streaming internet radio space - lets go over a brief overview of the business model.

Product: Streaming music via app or computer - tailored to the users preferences.

Revenue Streams: Advertising that play every few songs. Subscription packages. Selling songs or albums.

Content Providers: Much like TV, the providers of the content - in this case the musicians, producers, publishers ... ect are generally the winners, since it allows wide distribution (airplay) of songs to a target audience. Not to mention royalty payments.

Streaming Radio Co's: Have substantial IT, R&D, technology budget since the streaming radio & mobile application is still relatively new, and requires a strong development team. The companies are similar to Netflix or Hulu, in that they need to acquire the right to the content, and pay royalties. This content allows them to acquire users - who ultimately are served ads - or pay a monthly fee.

Source: Time

Potential Winners

AAPL - iTunes Radio - Is the gorilla who can just play around in the streaming radio playground. They can monetize users with the option to buy a song in the iTunes store, which gives them some advantages over competitors who get a smaller % of a similar sale. While their relationship with the music industry as been somewhat tenuous over the years, artists recognize the importance of iTunes, and iTunes is a massive revenue stream for the music business. That has allowed Apple to develop relationships with record labels, publishers and artists over the years - which certainly can help them acquire content for the iTunes radio.

Pricing Model
Free with ads or $24.99/year

P - Pandora - This was one of the first companies to prove the business model somewhat. They too have a somewhat tenuous relationship with content publishers, and rising costs will be the name of the game each time these licenses are renewed. On the positive side, an early mover advantage, and a large user base helps Pandora against competing services. In essence, the users who signup for a competing service more than likely have tried Pandora - so they set a bar for software and user experience.

Pricing Model
Free with ads or $4.99/mo Pandora One - ad-free streaming.

As a side note, just because Pandora could emerge as a winner in this category - doesn't mean the stock isn't overvalued. Additionally, Pandora has virtually the smallest music catalog, and streams at a lower quality than most of the competition.

Beats Music - These guys are still really new, but have an advantage because Beats headphones have become popular. It's possible they can use that brand to develop a following in the streaming music business as well. One example would be offering trial subscriptions with any Beats headphone purchases. Additionally, the platform boasts the high quality streaming sound available. Additionally they have the backing of Dr. Dre and music industry veterans.

The company actually describes the sometimes difficult task of acquiring the rights to stream new music - which is a challenge all these companies face now & into the future.

Adding new labels can take quite a bit of time. We have to sign an agreement, get the music sent to us, and then build  the content into our front-end, making sure all metadata is mapped correctly, including similar artist information that populates our recommendation and discovery features. Beats Music FAQ

Pricing Model:
$9.99/mo or $119.88/year - 1 account 3 different devices.
AT&T Partnership: Family Plan = 5 accounts $14.99/mo

XBOX - Amazon
These two companies can offer the streaming music as an add-on benefit to XBOX Live or Amazon Prime subscriptions. This could increase retention rates of current users, and could cut into stand-alone streaming music providers like Sony, Rdio, Spotify and Rhapsody who don't currently offer a free/ad-supported service level.

Trying to pick the winner from this much competition would be like picking a girl on the bachelor .... you could easily make a choice .... but you sure are giving up on a lot of other nice women too. Personally I will stay on the sidelines and watch these companies & investors duke it out.

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