1. What are some plans after this investment round to bring 8tracks into competition with Pandora, Spotify, and other music services?
Porter: There’s a number of things, and I think that the most important thing is that we are focused on a part of the music listening realm which tends to be the most common, that is to say lean-back radio-style listening, and so at least in the near term we want to stick to what we do best.
We do have incredible depth of content, but I think that one of the things where we may have fallen short in the past is that it’s not as easy as it ought to be to find those playlists which are most relevant to you, so there’s a lot to be done in the sense of leveraging data science and personalization. Ultimately what we want is to make it dead-simple to find playlists that are relevant to a particular listener based on taste. There are different ways we are going to chew that up, and you will see more of that coming in the months ahead.
The other big thing that is an area of focus is to make it easier to create playlists. Right now the majority of playlists are made by uploading music, so one significant project is directly licensing a comprehensive library of ultimately all music, and in doing so we can remove the upload requirement — bringing the ability to make playlists to our mobile apps. Today playlists can only be made on web, and so only a third of our users (as you saw in the last two slides) can actually make a playlist, so we can make it much easier for users to create playlists on their handsets in the back of the bus or in the subway, so I think that fundamentally changes the first engine of production for 8tracks, which is playlist creation.
I think there’s also things we can be doing to optimize streaming on the handset, so that will be an area of focus. And we’re also getting ever more savvy about A/B testing out small changes to the website affecting 10% of our users and comparing the results. We’ve had such a small team so we’ve never really been able to do that in a scientific way, but that’s one of the bigger areas of focus so we can make steady improvements and ensure that the feedback that we’re getting from our users gets incorporated into an ever-better product.
2. Will 8tracks be cheaper in operation than sirius radio to get started?
Porter: That’s a really good point. Bringing a broader variety of music and personalities to the car currently relies primarily on putting satellites into outer space, which is obviously an expense at the outset. What’s different about internet radio broadly is that it’s much cheaper at the outset to set things up; the royalties that we pay as calculated as a percentage of revenue tend to be quite a bit higher than satellite radio. Satellite radio is primarily a subscription service, and the average revenue generated per listener tends to be quite a bit higher, but certainly in getting a service off the ground it is much cheaper for us to do so. And at the margin, for every hour that we stream, we want to make sure that the revenue that we’re bringing in from advertisers is sufficient to cover a healthy profit margin to cover the cost we incur in paying royalties to record labels and artists.
3. What’s the breakdown of advertising revenues?
Porter: 97-98% of our revenues come from advertising. We have a direct sales team based in NY primarily with satellite sales in Toronto & Chicago, and the advertising they sell is focused on brands that are a good fit with our user demographic. Typically it’s pre-roll video (video that runs before the music), and native ads. We also sell advertising through some partners and run advertising of our inventory through our ad networks.
The subscription side of things hasn’t been focused on primarily because of resource constraints, but we will begin to focus on that hopefully later this year. One of the goals is to bring a certain functionality that has been long requested by listeners as part of an extensive subscription radio offering. So for example, a listener will be able to tune in with more skips allowed than normal, and would also be able to cache some number of playlists for offline access for when you’re in the subway or plane or what have you. Those are pretty exciting, and we will keep everyone apprised as we get closer to rolling out those elements.
4. How does 8tracks intend to solve the issue with music rights in Europe? Did you observe a big decline in Europe after beginning to geo-block in February?
Porter: Yes we did, and most of that came from the mobile app because it is no longer available outside the US & Canada on either the iOS or the Android app. We continue to be available as a series of YouTube videos on the web, but obviously that’s a less-than-ideal experience. We absolutely want to be available in every part of the world; we’ll be focused on those territories where it makes the most sense soonest, and in fact our biggest focus right now is returning to Western Europe. I have a colleague named Tuhin Roy who is leading the charge, and we’re looking at the rights issues in particular in the U.K., Germany and France, and our hope is that we can return streaming to those countries, perhaps by the first quarter of next year.
Taking a step back, one of the things that makes 8tracks special is that it does represent listeners from every part of the world, so finding a way to make 8tracks available everywhere is important to us.
5. Are there plans to integrate the app with automobiles, and are there any future integrations on the horizon?
Porter: One of the things that we want to do is make sure that we are wherever our audience wishes to tune in. So we have a couple of examples, maybe one that a few of you may know about and be excited to hear is that we will be returning 8tracks to Sonos. I’m also particularly interested in the Amazon Echo and similar devices that are voice-controlled and AI-driven, and I think there is a pretty significant opportunity for 8tracks in that environment because in the absence of a physical interface, there is a natural tendency to want to ask for a program of music in human terms, so you know, “play me study music that includes ODESZA” or something.
My hunch is that longer-term the interface will also hook right into the car — it’s just sort of a logical thing given that when you’re driving on the highway at 65 miles per hour you don’t really want to be fussing around with the dial. So I think the most likely path to get there will be working through existing platforms, rather than doing one-off integrations, and have our app available on those platforms so that those can tune into 8tracks from wherever. But the most exciting thing that I’ve seen recently is the potential for voice activation of their music programs; that will be the main way that people ultimately listen to 8tracks in both the home and the car.
6. Are there plans to place audio ads between playlists during lean-back listening?
Porter: I think in the future we will have to do our own flavor/unique type of audio ad. One of the things that I see happening is an increasing shift away from consumption where there is a pervasive display component, with some of the potential use cases that I mentioned a moment ago such as in the car or in the home, which means there isn’t a way to monetize using traditional display or even a video ad at that point, so I think we have to be thoughtful about how we introduce audio ads.
Today we actually do have a form of audio ads: it’s essentially a partnership with another company called Feature.fm, and what they do is sell the ability for a label/artist to place a track that runs in-between playlists. Our objective internally is to make sure that the relevancy of that promoted track is high based on it being stylistically similar to previous and subsequent playlists. We failed at that in some cases, but we’re getting ever better at that thanks to our data scientist and his work in making sure that there is alignment in terms of the type of music we’re seeing being placed before or after the ad.
So that’s our first foray into audio ads, but I think at some point we will have to think about other audio ads, however I think in our case given our demographic, I think they need to be a little bit different; they need to be shorter for one, and be optimized for relevancy for that particular person in terms of demographics and the like. We want to innovate on audio ads in ways no one has really done it yet. A lot of traditional buyers of digital advertisements have never bought radio ads, and a lot of current radio ads are local (car dealers and the like), so I think part of this will be an education process/collaborative effort with some of the traditional digital buyers that we have worked with to come up with audio campaigns that they may not have done before. We will have to do that at some point, but we want to do it in the right way for our users, so we always choose a better user experience first: we want to create audio ads that are creative and engaging. That will be a bigger focus probably in the years to come, but there are no immediate plans to introduce audio ads; I’m keen on first promoting songs in the way I mentioned at the outset.
7. Has there been any thought towards allowing DJs to monetize based on playlist popularity?
Porter: One of our original ideas was that any music that was subsequently purchased from a DJ’s playlist is that some portion will be shared with the DJ. One of the challenges has been that there’s not a lot of extra room to play with in terms of dedicated resources, but having said that there’s two different ideas about what we could do there, and I think the most interesting idea is our resident DJ program. We set something up where DJs who are highly engaged and have a history of making excellent playlists have the opportunity to create playlists on behalf of a brand. It’s still in its early days, but the idea is to match those DJs who are interested in this kind of opportunity to have access to it. There isn’t a very stable way to do that today, but we’re looking to build that out further.
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*Disclaimer: 8tracks, Inc. (the “Company”) is offering securities through the use of an Offering Statement that has been qualified by the Securities and Exchange Commission under Tier II of Regulation A. A copy of the Final Offering Circular that forms a part of the Offering Statement may be obtained from https://seedinvest.com/8tracks/series.a/filing. This Company’s profile and accompanying offering materials may contain forward-looking statements and information relating to, among other things, the Company, its business plan and strategy, and its industry. These statements reflect management’s current views with respect to future events based information currently available and are subject to risks and uncertainties that could cause the Company’s actual results to differ materially. Investors are cautioned not to place undue reliance on these forward-looking statements as they are meant for illustrative purposes and they do not represent guarantees of future results, levels of activity, performance, or achievements, all of which cannot be made. Moreover, no person nor any other person or entity assumes responsibility for the accuracy and completeness of forward-looking statements, and is under no duty to update any such statements to conform them to actual results.