To everything there is a season

December 26, 2019December 26, 2019 | David Porter

8tracks has had a long run and its day in the sun. We’re sad to announce, however, that the company and its streaming service will wind down with the end of the decade, on December 31st, 2019.

We have mixed feelings as we round out this decade and the life of 8tracks. We served many listeners and DJs well, at important times in their lives, for more than a decade, introducing adventurous listeners to new artists they may never have otherwise discovered, and for that we’re proud. On the other hand, we recognize we’ve disappointed many listeners and DJs, employees, investors and partners. We all wish we’d had the opportunity to continue to innovate in the music sector and serve our community and other stakeholders well, just as we had in our earlier years.

If you’d like to hear the “extended dance remix” of our journey, read on. If you’d rather skip to the TL;DR behind our decision, scroll down to bottom of this post.

A brief history of 137 months

Twenty years ago this month, inspired by the DJ-led dance music culture of 90s London and Napster’s “hotlist” feature, I completed a business plan for an online playlist sharing community, called Sampled & Sorted. Bootstrapping wasn’t an option in this era, and funding proved challenging after the NASDAQ crashed the following spring. So I decided instead to learn the ropes of a user-generated music streaming model (and startup life in general) at Live365, an internet radio service that predated Pandora. Some 8 years later, informed by my original business plan, lessons from Live365 and the mainstream adoption of social media, 8tracks launched on August 8, 2008 — some 137 months ago.

8tracks’ arrival came at a time of innovation and optimism. Obama would be elected a few months later, Facebook and Twitter were loved and exploding with promise, and the startup scene of NYC (where 8tracks was based) was hitting its stride, with Tumblr leading the way. 8tracks itself innovated in a few areas out of the gate: the playlist was the atomic unit of curation, sharing and consumption; each playlist was represented visually by its mix art, a couple of years before Instagram’s arrival; and DJs could apply freeform tags to describe a playlist by not only by genre or artist but also by activity, mood or other theme, introducing a novel, contextual approach to listening that Songza, Beats, Spotify and others would later emulate.

We hit the ground running, with Peter Kafka‘s thoughtful coverage at launch and Om Malik‘s favorable comparison to Muxtape shortly after it was forced to shut down. A couple of 8tracks mixes blew up on StumbleUpon the following spring, boosting our active users from 30k to 300k in a single month. While we had initially self-funded from my 401(k) and my co-founder Remi‘s savings, we saw enough growth to raise angel funding — allowing us to keep pace with growing royalty and bandwidth costs and pay a few part-time contractors. I moved back to San Francisco, and we found a unique, inexpensive loft space near Dolores Park where I lived and the team and I worked.

As a result of steady growth and an introduction by Alex Ljung to Index Ventures, we raised a $1.2m seed round in August 2011 — exactly 3 years after launch, and enough to begin paying full-time employees for the first time. I was also excited personally, as the round included not only Andreessen Horowitz (a16z) but also English DJ Pete Tong and Chairman/CEO of Atlantic Records Craig Kallman. Armed with our first significant funding, we grew > 5X in 18 months (4.1m streaming hours to 21.9m streaming hours) and reached monthly profitability (under the now-defunct Small Webcaster license) in 18 months. Good times.

But each Up came with its commensurate Down. Our positive operating and financial metrics suggested we should raise a larger A round to double down on growth. However, Index and a16z, the venture firms that had invested in the initial seed round, passed on leading our A round. In fairness, the benchmarks for VC investment at this stage were (and are) high; we were on track to be huge, but it wasn’t clear we were on track for a >$1bn exit, particularly given the competition. To paraphrase one VC: our growth was good and, as a result, it was likely we’d be acquired by a larger internet or music streaming company, capping their upside. While a reasonable thesis, this made it harder to raise funding elsewhere.

The VC’s perspective proved prescient: Google reached out to us later that year (2013) to explore acquisition. We decided not to pursue the opportunity, as Google envisioned an acqui-hire, re-purposing our engineers to make Google Play “more social” and likely shutting down the existing service. We had our sights set on growing 8tracks into a large independent company, and our growth had continued unabated: we now reached nearly 8m MAU who streamed 30m+ hours each month. We had generated over $500,000 in ad revenues in a recent month, and a fund with very deep-pocketed, strategic backing had verbally agreed to lead our A round.

But we faced a set of new challenges in 2014. Perhaps most significant, Spotify’s free offering on mobile, launched in December 2013, began to cannibalize our audience. The investor we’d expected to lead our A round backed out. And our growth in listening and revenues during 2013 meant we no longer qualified as a Small Webcaster; instead of paying royalties calculated as a percentage of revenues — such that royalties grow as revenues grow, as one would expect — we now had to pay high per-play rates as a Large Webcaster, taking us out of profitability. Given our primarily ad-based business model in which revenues can fluctuate significantly from one month to the next, it was hard to predict profitability.

We’d set up a mutually beneficial integration with SoundCloud in 2011 so that our DJs — whose playlists heavily favored music from indie labels and DIY artists over that from major labels by a 2:1 margin — could add music from SoundCloud to a playlist, driving plays and exposure for those artists. In 2015, however, SoundCloud required that we reverse our integration. As early-adopting music consumers had shifted to on-demand streaming from downloads, many 8tracks DJs no longer had the “raw materials” to craft playlists.

The combination of Spotify’s growth in listenership at our expense, mainstream adoption of on-demand streaming in lieu of track downloads (creating an impediment to curation for many of our DJs), a loss of 1/3 of our streaming hours over the 18 months to July 2015, our inability to raise a Series A round, and increasingly challenging unit economics suggested it was, in fact, time to sell. Accordingly, we met with several investment banks and opted to “run a process” with Perella Weinberg to find a good home with a shared vision and greater resources. But despite broad outreach and myriad meetings, we found no credible buyers. I suspect most investors expected we’d shut down, but we loved our product and community and wanted to find some way forward.

Historically, we paid royalties for all streaming to SoundExchange (the entity established to collect and administer royalties under the US compulsory license for webcasting) as we didn’t always know a listener’s location, and to ensure all artists were getting paid through a fair system. However, in early 2016, we were required to cut off streaming to listeners outside the US and Canada. The royalty rates offered under direct licenses in other countries were too expensive vis-a-vis the CPMs achievable through programmatic advertising (e.g. Google AdSense), and we were too small to field regional sales teams. As 40% of our listenership had come from outside the US and Canada, the depth and diversity of our programming — a value proposition that had long set 8tracks apart — took a hit.

But our community also remained undeterred. Shortly after the cutoff, we ran a “testing the waters” campaign to gauge interest in a Regulation A (equity-based) crowdfunding round, newly available under the JOBS Act. As our community creates our programming and has a psychological investment in the 8tracks platform, it stood to reason that passion might be meaningfully consummated in a financial investment. We were amazed to receive over $33m of investment interest. Of course, we recognized there’d be a delta between what people said they’d invest and what they actually would, and we set a cap of $11m on the round.

While we waited for approval of our SEC filing, we ran low on cash. We considered our options and proposed a plan — “maintenance mode” — whereby contributors on our team could voluntarily reduce their pay to conserve cash; in return, if we raised at least $5m, we’d pay the shortfall plus a cash bonus. As always, prior and since, the team’s commitment to our shared vision was humbling. Nearly all took the pay cuts, and we scraped by until the first receipts from crowdfunding came in. Unfortunately, for regulatory reasons, credit cards could not be used to invest; and while SeedInvest, the platform we used to execute the round, was able to accept debit cards initially, our debit card processor decided, several weeks in, that it no longer wished to support crowdfunding initiatives. This processor held up the money invested for a month, and then in an attempt to reverse the debits inadvertently charged debit card investors a second time. While that situation was ultimately resolved, it took a toll, and we raised less than $2m in the round — a good showing for an early crowdfunding round but not enough for our ambitions.

By October that year, as our crowdfunding, listener count, streaming hours and revenues all fell short of expectations, it was clear that we needed to make a significant change to increase revenues and/or decrease expenses — or we’d be on a trajectory to run out of money. We laid off more than half of the team, shifted our focus to a subscription model through introduction of a weekly listening cap, and outlined our plans and rationale on the company blog. While the introduction of audio ads a year later helped us remove the listening cap, and we returned to monthly profitability in April 2018, our audience and revenues have never recovered. As we could only afford to support a small team (and only 4 contractors working one day per week for the last year), we’ve had to prioritize maintaining the service over innovation, and our listenership and revenues have steadily declined.

About a year ago, we decided we’d explore what we called our “Switzerland strategy,” whereby listeners could authenticate on 8tracks with their preferred on-demand music streaming service and then stream 8tracks playlists using that account. We further envisioned 8tracks could become a platform that could connect different services, so one DJ could use her Spotify account to publish a playlist into 8tracks, which could then be streamed by a listener using his Apple Music account. While I still think this idea has legs, we simply didn’t have the resources to properly execute this vision.

In the spring, SoundExchange reached out to push for payment of back royalties. Based on advice of counsel and advisors, we decided to pursue an “ABC” (assignment for the benefit of creditors). With the leadership of a dedicated firm called Armanino, we ran a very thorough M&A process (yet again) to find a buyer. In an ABC, the highest bid is designated the “winner,” assets (but not liabilities) are assigned to a new holding company (old company is shut down), and the winner buys the assets from this holding company, with proceeds administered by (in our case) Armanino to pay creditors ratably based on the liabilities outstanding. This process uncovers our “true” fair market value — based on what, in fact, a company is willing to pay for 8tracks today — maximizing the return to creditors and, if liabilities are repaid, our return to investors. We found a prospective low-ball buyer in the fall but, last Thursday, that buyer decided not to complete its purchase of the company.

Why we’re shutting down

To state it simply, we’re shutting down because we can’t generate enough revenue, at our current scale, to cover royalties that continue to increase. One could blame “the music industry” for the travails of 8tracks — the path to the grave has been well trodden by many digital music startups these last 20 years. But the challenges run deeper, and I think it’s instructive to consider the perspective of the artist and label. As technology has advanced, the atomic unit of consumption has shifted, from prepayment for consumption of all the songs in an album (the CD), to prepayment for use of a single song (the download), to pay-as-you-go for an individual song (the stream). With each step, the artist (and anyone who represents that artist, like a label) gets paid less and later; with each step, the listener gains more flexibility in paying for and consuming what they want, when they want it.

While the resulting pressure on margins suggests a shift away from the traditional label structure, toward an artist services model, the fact remains that it’s not easy for most artists to generate meaningful revenues through music streaming — particularly as streaming consumption has spread “down the Tail” to DIY artists, independent labels, back catalog at major labels, and even AI-generated music. More than 40,000 tracks are added to Spotify every day, and myriad forms of digital entertainment and information — the rabbit hole of YouTube, games, apps, blogs, newsletters and more — compete for the attention of the youthful demographics that traditionally consume the most music. It’s unsurprising that royalties remain expensive and will continue to increase.

Given the magnitude of music royalties, the only way to field a enduring streaming music service (if music from the major labels is to be offered) is through money and scale. We’re nearly out of cash and can’t afford to pay current and past royalties, which we expected we’d be able to pay off in whole or in part through the ABC process mentioned above. But the reason we fell behind in royalties is because we steadily lost the scale of listenership necessary to sell advertising with a direct sales team at CPMs that would cover compulsory royalty rates with a solid margin. And the steady decline in our free, ad-supported audience resulted in a smaller base of active listeners that might eventually be converted to 8tracks Plus, our ad-free subscription offering.

We lost listenership, in large part, because Spotify was able to satisfactorily address listener needs for music discovery and activity- and mood-based listening over time, as it improved its offering, reducing the relative appeal of 8tracks’ early lead in delivering on its unique value propositions through a crowd-curated model. (As a sidebar, I’d argue that listener and curator needs for community and social interaction are still underserved.)

Moreover, Spotify offers a complete music streaming experience, spanning on-demand and lean-back (radio) listening. Our bet was that most consumers, most of the time, would opt for highly tailored lean-back programming — because easy and relevant — and could pop out to an on-demand service once in a while when they wished to hear a particular track or artist. And we were right, in part. Executives at on-demand services note that, after a new user’s honeymoon period of building her on-demand library, she generally migrates to listening to her library (aka liked songs) on shuffle or to a lean-back program of music (playlist or station). Nonetheless, easy, on-demand access to any song has proven to be a must-have requirement; it’s what people are accustomed to in the “ownership” model, and periodic on-demand listening makes algorithmic lean-back selections ever better. The upshot is that the average music consumer wants all of his listening needs addressed “under one roof.”

Given 8tracks’ audience size and declining trajectory vis-a-vis Spotify, Apple, Amazon and Google/YouTube, we were unable to raise sufficient funding (or find a good home for the company) to properly invest in product development, both for features that would have capitalized on 8tracks’ unique value proposition in the streaming music ecosystem as well as for features viewed today by most consumers as “must-haves” (such as the aforementioned on-demand licenses that, during our peak years, would have required 10s of millions in investment to fund). Without sufficient funding, we couldn’t hire (or retain) the people needed to drive this product innovation; without product innovation, we’ve fallen further behind competing services, reducing our audience and revenues further in a downward spiral.

We — the remaining team at 8tracks — all think it’s still to hard to find playlists with a “soul behind the music.” User programmed playlists on Spotify and YouTube are great, but they remain relatively hard to navigate to find the best ones for a particular person’s taste, time or place. And there’s not (as yet) an ecosystem to allow curators to flourish. There’s still work to be done.

Get your playlists

While we can’t port the 8tracks community to an existing music streaming platform en masse, we can make it easy for you to grab the metadata from playlists you’ve created or liked, so you can re-create these playlists on your second-favorite music streaming service ; )

If you’ve ever published a playlist on 8tracks, you’ll receive an email today or later this week, including the mix name, art, description and tracklist for each. If you registered with 8tracks using your Facebook or Google credentials, please send us an email at support@8tracks.com, including your 8tracks user name, and we’ll email you this information for each of your playlists.

In addition, on 8tracks.com, you can export any 8tracks playlist to Spotify by clicking the “Save playlist to Spotify” button included on top of the mix art. This process isn’t perfect, as some tracks aren’t available on Spotify, and others are available but aren’t matched to Spotify’s catalog. But 80-90% of tracks in a given playlist should match, for most genres. Note that we can’t make any assurance as to how long the website may remain up and running, so please act now if you’d like to migrate your favorite playlists over to Spotify.

8tracks, by the numbers

In closing, I thought it might be interesting to reflect on 8tracks, Harper’s Index-style, by the numbers:

Months since incorporation: 159
Months since launch: 137
No. of registered users: 19.6m
No. of DJs: 750k
No. of playlists: 3.5m
No. of tags: 500k
Monthly active users (Nov 2019): 927k
Hours streamed per month (Nov 2019): 539k
Subscription revenue (Oct 2019): $47k
Advertising revenue (Oct 2019): $6k
EBITDA (Oct 2019): $18k
No. of investors in our Seed 1 round: 37
Funding raised in our Seed 1 round: $1.2m
No. of investors in our Seed 2 round: 40
Funding raised in our Seed 2 round: $1.4m
No. of investors in our Regulation A crowdfunding round: 4,464
Funding raised in Regulation A crowdfunding round: $1.8m
No. of investors willing to lead our Series A round: 0
No. of buyers in 2015 M&A process led by Perella Weinberg: 0
No. of buyers in 2019 M&A process led by Armanino: 0

Password security alert

June 27, 2017June 28, 2017 | David Porter

We received credible reports today that a copy of our user database has been leaked, including the email addresses and encrypted passwords of only those 8tracks users who signed up using email. If you signed up via Google or Facebook authentication, then your password is not affected by this leak. 8tracks does not store passwords in a plain text format, but rather uses one-way hashes to ensure they remain difficult to access. These password hashes can only be decrypted using brute force attacks, which are expensive and time-consuming, even for one password.

We have found what we believe to be the method of the attack and taken precautions to ensure our databases are secure. 8tracks does not store sensitive customer data such as credit card numbers, phone numbers, or street addresses.

What does this mean for 8tracks users?

Passwords on 8tracks are hashed and salted, meaning that even we can’t tell you what your password is by looking at the database. Although the decryption of one particular user’s password through brute-force techniques is unlikely, we recommend that users change their password on 8tracks and any sites on which they may have used the same password to ensure their personal security. This type of data breach is similar to those previously reported to have impacted accounts with Adobe, Dropbox, LinkedIn, Tumblr and MySpace.

We recommend that people refrain from using the same password across multiple sites, particularly on sensitive applications like email or banking software. We suggest making use of two-factor authentication and using a password manager like LastPass or 1password.

What got leaked and how?

We believe the vector for the attack was an employee’s Github account, which was not secured using two-factor authentication. We were alerted to this breach by an unauthorized password change attempt via Github, and it was verified independently by examining data from journalists and a security services company.

We do not believe this breach involved access to database or production servers, which are secured by public/private SSH-key pairs. However, it did allow access to a system containing a backup of database tables, including this user data. We have secured the account in question, changed passwords for our storage systems, and added access logging to our backup system. We are auditing all our security practices and have already taken steps to enforce 2-step authentication on Github, to limit access to repositories, and to improve our password encryption.

We apologize to those affected by this breach for the inconvenience and are grateful for your understanding and support. We are committed to doing our absolute best to protect our community and keep our users’ data safe.

Independent Radio and the Challenges of Streaming Music

December 12, 2016May 3, 2017 | David Porter

As many of you are aware, we announced new limits for US listeners in October. We’re not happy about having to establish these limits, and we wouldn’t be taking this path if we had another option. In this post, I’d like to go a bit deeper in explaining our decision, providing more context and detailing our underlying economics, to ensure our listeners have a crystal clear understanding of why we’re taking the tack we’ve pursued.

So it began

My original conception of 8tracks dates back nearly 20 years, from the time I lived in London and enjoyed its rich, diverse electronic music culture. Inspired the culture’s focus on the DJ, I envisioned a music-based social network that democratized the role of the DJ, allowing anyone who loves music to curate playlists for others who hadn’t the knowledge or time. My belief was that music was most effectively “packaged” by people (not algorithms).

Fast-forward 10 years, I found myself bootstrapping 8tracks on a nights-and-weekends basis with a loan against my 401(k) plan, eventually launching the service on August 8th, 2008. We saw good early take-up and, by the end of 2010, began to get interest from investors. Three years after launch, on the back of a $1.2m seed round, we hired our first employees. We achieved profitability 18 months later thanks to our status as a Small Webcaster, which allowed us to pay royalties on a percentage of our revenues (rather than on a per-play basis that ignores the level of revenue generated).

The challenges of streaming music

Despite encouraging growth and even profitability, it proved challenging to raise a significant “Series A” round from traditional investors. Top venture capital firms seek startups in less competitive sectors, with more favorable economics, which they believe are on track to be valued at over $1 billion. We grew out of Small Webcaster status in 2014 and, as our royalty burden grew, we became unprofitable once again.

We’ve long believed in the advertising model, as radio — historically and still the primary way new music is both promoted and discovered — should be free to allow artists to reach the widest possible audience. Our devoted community has grown around this free, ad-supported model for years. Unfortunately, our royalty rates in the US grew by yet another 20%+ in 2016. Moreover, we saw a decline in our audience during 2015 and 2016, making the advertising model more challenging (more on that in a bit). And our crowdfunding round this year, while a great showing of support from our community, has ended up coming in at a much slower rate, and at a lower amount, than we’d anticipated based on our initial survey of the community in early 2016.

Bottom line, the royalty rates we pay are too high to support our costs with a free, ad-based listening model in the US. I know that some listeners are genuinely frustrated by the limits, but it’s important to realize that no digital music service is generating a profit. Larger services have raised billions to fund continued losses or may simply use music as a “loss leader” to derive revenue through another business line.

By the numbers

The simplest way to demonstrate our range of options is to look at the math. In the US, the sound recording royalty we pay under the compulsory license is $0.0017 per ad-supported stream, nearly 19X the equivalent rate in Canada (which is why an ad-based model on a medium-sized platform remains viable there). The economics of music streaming are typically evaluated by denominating revenues and expenses on an hourly — or “per 1,000 hour” — basis. Our average track length is 4 minutes, so multiplying $0.0017 x 15 equals $0.0255. The royalty cost per 1,000 hours (“CPM”) is thus $25.50, and this represents most of the direct cost “hurdle” we have to recover through advertising and subscription revenues.

In its most recent quarterly results, Pandora generated $58.10 in advertising revenue per 1,000 hours streamed (“RPM”). Pandora is able to cover its sound recording royalty CPM more than twice over because it reaches 78m listeners per month (making it a one-stop-shop for a brand or agency that wants to reach people who listen to music) and employs 100s of people in the ad sales function (more than ½ its team). In comparison, 8tracks’ smaller audience (4m) and sales team (7 people until our layoffs on October 4th) allowed us to generate an average RPM over the last year (through September) of $24.28 — roughly the same level as our royalty CPM.

Sufficient funding would allow us to properly invest in engineering, product and marketing, which would help us attract and retain listeners and thus serve a larger audience. A larger audience, in turn, makes us more attractive to brands and agencies, which typically wish to buy advertising on a few larger services within a particular category (e.g. music) rather than apportion their marketing budget among many services.

Based on extensive modeling, we concluded at the outset of our crowdfunding round that at least $5m but ideally $10m would allow us to aggressively pursue the growth necessary to make an ad-based model work, and we filed with the SEC to raise up to $11m in June. However, we’ve only closed (to our bank account) $1.5m in funding over the 6 months since the launch of crowdfunding. Another $1m of “confirmed” investment has yet to be be received from crowdfunding investors or SeedInvest, and we plan to continue crowdfunding on another platform in 2017.

Our plan for the future

To make the company sustainable at our current levels of audience and funding, we have to focus on near-term sustainability over mid-term audience growth. This requires that we:

Reduce fixed costs (primarily payroll)
Increase RPM by shifting most of our US revenue mix from ads to subscriptions
Reduce the streaming (and thus royalties) associated with ad-based listening in the US

To reduce fixed costs, we’ve decreased the size of our team. When we filed with the SEC for our crowdfunding round in June, we engaged 26 people as employees or contractors. After 2 rounds of layoffs, we’ve pared back our team to 10 people. As a result of these headcount reductions and other cost-cutting measures, our largely fixed, non-royalty expenses in December (e.g. payroll, taxes, hosting, streaming, office rent, software licenses) will be nearly one-half the monthly level we incurred prior to our first set of cost reductions in March.

To encourage free listeners to subscribe, and to reduce the royalties associated with ad-based listening, we introduced listening limits earlier this month. The additional revenue impact of subscribers is significant: while the average revenue per ad-based listener per month has historically hovered around $0.12, that figure for a subscriber is $2.99 (based on the introductory pricing available this month), a roughly 25X differential. But the listening caps also set a ceiling on the royalty costs associated with free, ad-supported listening, where the associated advertising RPM falls short of the royalty CPM. To ensure we get these limits right, we’re testing several limit tiers and will conclude on the best approach over the next week. The weekly listening limit will help 8tracks return to sustainable economics in 2017.

While we’ll settle on a largely standard listening limit, we’re also rewarding DJs who create excellent playlists with listening time bonuses. We’re also evaluating the impact of these limits on brand-new registrants and we’ll likely offer a higher initial limit for these listeners to fully appreciate the depth and personality of the 8tracks platform.

While we’re not happy about having to introduce limits on free listening, we’re thrilled to be laying the groundwork to offer subscribers great new features…

The silver lining

On a positive note, we have nearly wrapped our deal with the first of the major labels. A number of setbacks over the last year — SoundCloud removal, cutoff of streaming outside the US and Canada, and tightening of skip limits — have been required to make progress and stay in the good graces of the record labels. And now 8tracks is poised to see the upside.

Under the terms of the deal, we’ll be able to provide DJs with direct access to the label’s catalog when creating a playlist, without requiring an upload. Some music will be available without a subscription while other music will require it. In addition, the deal allows subscribers to skip tracks more frequently and save playlists for offline listening; both features will be introduced once we’ve a critical mass of direct deals to support these features. Direct deals also lay the groundwork for making 8tracks available outside the US and Canada.

But, even today, an 8tracks Plus upgrade does more than just remove the weekly listening limit:

Ad-free listening, always
No interruptions between playlists
Animated gifs for your playlist artwork
A flashy badge to show off to your friends and admirers

We’re excited by the number of listeners who’ve already shown their support and signed up to 8tracks Plus in the past 10 days, since the introduction of the listening limits. We want the 8tracks platform to continue to provide a unique music discovery experience for people who care about music, and we’re grateful for those who can help us make this transition to a new era for independent radio.

A shift for 8tracks in the US

October 28, 2016November 1, 2016 | David Porter

Hey everyone,

In the coming weeks, we’re going to shift our focus in the US to our 8tracks+ subscription model, including the introduction of a listening cap. I’d like to take a moment to walk you through the background, our gameplan, and the impact on our community.

The problem: the economics of streaming music

Streaming music on the internet is expensive. So expensive that, to date, no digital music service is generating a profit. Larger services have raised billions to fund continued losses, but even with our recent crowdfunding, 8tracks has raised only $5m over the last decade. We want to build a sustainable business that doesn’t require ongoing VC funding.

We’ve historically relied primarily on the sale of advertising to generate revenue for 8tracks. The ad model works best for a service with a large audience, as brands and agencies would prefer to work with relatively few apps or websites in a particular category so their efforts aren’t spread thin. We’ve found that when we lose ad deals, it’s typically because of our audience size. As a result, it’s been difficult to generate a consistent level of revenues from one month to the next. On the other hand, in the US, we pay a high fixed royalty rate on a “per track, per listener” basis. (In Canada, this rate is one-tenth that in the US.) Our US royalty is the same rate paid by Pandora, which — thanks to its larger audience and sales team — brings in four times the ad revenue per hour that 8tracks is able to generate.

Over the past four months, our community has rallied behind us, raising $2.5m to help power our future. However, the round is half of our $5m target for crowdfunding, likely not enough to fund the growth necessary to make the economics of a primarily ad-based internet radio model work in the US, given the prevailing royalty rates.

Our solution: diversify our revenue base

Historically, we haven’t placed much emphasis on promoting our 8tracks+ subscription, but we believe it represents a big opportunity for revenue growth. Our average revenue per user (ARPU), on a monthly basis in the US, has trended at $0.12; our current 8tracks+ price point is $2.99, a 25X difference. If a meaningful proportion of our listeners subscribe, and we limit the amount of streaming (and thus royalty expense) for ad-based listeners, we can return 8tracks to profitability over the course of the next year.

To ensure 8tracks can sustain itself with its current level of funding, we’ll introduce both limits on free listening and benefits for paid listening over the coming year. The cool things in the latter bucket — more skips, offline listening, full DJ library access — are dependent on our direct deals with labels, and we’re not yet in a position to offer these as part of 8tracks+. The less cool things in the former bucket — more ads, interstitials that stop playback between mixes, weekly limits on the number of hours a free listener can stream — will be introduced in early November to encourage listeners who tune in a lot to “pay their way” directly and to cap our royalty costs for those who do not.

How will this affect investors in our crowdfunding round?

If you’ve already contributed cash to 8tracks by investing in our crowdfunding round, you will automatically receive 8tracks+ in perpetuity — for life! — which we’ll apply to your account within 30 days.

How will this affect our DJs?

Similarly, if you’ve contributed your time and passion to 8tracks by creating awesome playlists, we want to ensure your contribution is properly recognized:

Any DJ who’s earned the equivalent of a Gold certification (100 likes) — on a single mix or across multiple mixes, on a cumulative basis — gets 2X the normal weekly listening limit
Any DJ who’s earned the equivalent of a Platinum certification (1,000 likes) — on a single mix or across multiple mixes, on a cumulative basis — gets 3X the normal weekly listening limit
Any DJ who’s earned the equivalent of a Diamond certification (10,000 likes) — on a single mix or across multiple mixes, on a cumulative basis — gets free 8tracks+ in perpetuity (just like an investor)

To check in on progress toward these milestones, DJs will be able to view their cumulative like count across all mixes published. Also, DJs will continue to have unlimited, on-demand access to any mixes they’ve created solely through personal uploads.

How will this affect our listeners?

US listeners who do not subscribe to 8tracks+ and who haven’t invested in our crowdfunding round will be limited to a prescribed number of hours per week. We haven’t yet finalized the threshold for this listening cap, and we’ll be testing the impact of several different caps for the first few weeks after launch. Of course, a listener can remove the weekly listening cap as well as interstitials that stop playback between mixes and all ads by subscribing to 8tracks+. As a result of substantially lower local royalty rates, listeners in Canada will not be impacted by the listening cap or interstitials but, as before, can subscribe to remove advertising.

While we wish we didn’t have to introduce limits on ad-based listening, we’re pleased to be able to offer a better user experience for all investors, many of our DJs, and a growing number of our devoted listeners, all while ensuring a healthy future for the service and community.

Thank you for continuing to support 8tracks!

Start your free 14-day 8tracks+ trial

The Strength of a Community

October 18, 2016October 18, 2016 | David Porter

8tracks explored uncharted territory in 2016.

Historically, only wealthy individuals and venture capital firms have been allowed to invest in startups. In June, 8tracks became one of the first companies to change that by kicking off an “equity crowdfunding” campaign, allowing our DJs and listeners to own stock in the company.

The community has rallied behind us, with more than 4,500 investors collectively investing over $2 million. The funding will help us make 8tracks better for listeners and DJs alike, bring 8tracks to new markets and new platforms (Amazon Echo, Google Home, Sonos and more), and allow us to build a healthy business to serve our community for years to come.

This Friday, our crowdfunding campaign will come to an end on SeedInvest. If you haven’t yet invested (or if you’d like to invest more), you’re invited to join us here before the round closes on October 21.

As a token of our gratitude, we’re giving all investors at least one free year of 8tracks+ (our premium, ad-free 8tracks experience).

Secure your investment spot before Friday

We made 8tracks to highlight the dedication and talent of people who care about music and love to share it with others. Since our launch on August 8, 2008, the community has grown to over 17 million registered users, with 5 million people visiting each month to enjoy over 2.4 million handcrafted playlists. These numbers are a testimony to the strength of a community brought together by music.

I’ve included more news and information about our crowdfunding campaign below. Thank you for being a part of our journey!

-David Porter | CEO & Founder, 8tracks

IN THE NEWS

‘8tracks Secures Over $2.1M As SeedInvest Campaign Nears Closing Date’

‘Why Millennial Music Platform 8tracks Launched $11M Equity Crowdfunding’

‘8tracks & the Power of Crowdfunding: Rebels Among Music Streaming Titans’

Claim your shares before the 21st

INVESTORS #BACK8TRACKS BECAUSE…

“I love how the 8tracks platform works, so it’s exciting to be able to personally invest in something that I believe in and literally use every. Single. Day.”
– Natalia Karvelis | Rocklin, CA

“It’s a fantastic concept and I’m really glad I was able to have the opportunity to help build upon an already solid foundation.”
– Yency Garcia | Hialeah, FL

“It’s the best way to give ‘power to the people’. It allows anyone to share music in a free and fair manner, and for any reason. Want to make a special mix for a friend who lives 1000 miles away? 8tracks. Want to make a mix for an obscure cartoon from the 80s that still gives you nostalgic feels? 8tracks. A mix inspired by your favorite color, season, movie, book, whatever? 8TRACKS! It’s an absolutely wonderful medium to share music and to discover music. It’s like a highly personalized version of internet radio. :)”
– Kelly Keenan | Ridgewood, NJ

“The community is second to none. Friendships are formed. New music is constantly introduced and discovered. The 8tracks’ team is an approachable and receptive bunch of folks who go out of their way to provide the best experience for their listeners and DJs.”
– Patrick Quigley | Arcadia, CA

“I #back8tracks because it is the absolute best way to hear new music, old music, amazing music and to be in it with amazing people who love to make mixes. And most of all because it is FUN ❣❣❣ ♫♫♫”
– Danna Franzen | Peoria AZ

HAVE ANY QUESTIONS?

SAY HI HERE

Become an illustrious 8tracks investor

*Disclaimer: © 8tracks, Inc. (“8tracks”) 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 seedinvest.com/8tracks/series.a. 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. 8tracks reserves the right to revise the round closing date at any point. The individuals above were not compensated in exchange for their testimonials. In addition, their testimonials should not be construed as and/or considered investment advice.

Eight years of 8tracks

August 8, 2016August 11, 2016 | David Porter

8tracks, my oldest ‘child’ in a sense, turns 8 today (we launched on 8/8/2008). So I thought it’d be a good time to reflect on the 8+ years that’ve gone into it, beginning with a bit about me.

I grew up in Delavan, a town of 2,000 in central Illinois. After graduating from high school — with roughly the same 50 people with whom I’d started kindergarten — I went to the University of Illinois at Urbana-Champaign. I studied accounting, joined once-venerable Arthur Andersen in Chicago, and fully intended to go to a finance-focused business school after a few years.

But after 3 years at Andersen, I had the opportunity to move to London, ostensibly to further my professional development but really, in large part, so I could explore its amazing electronic music scene. Around the same time, I read Nicholas Negroponte’s Being Digital, which predicted how the internet would ultimately change business, society and culture. I became excited about the potential for the internet and began to realize there could be a nice intersection between my personal interests and professional plans.

So when it came time to apply to business school, my ambitions had changed. I moved back from London to attend Berkeley in July 1998. And I decided to take a different tack than I’d originally intended, writing my application about starting an internet music company after graduation. I played the electronic music I’d discovered during the London years for classmates — this sort of music just wasn’t even available for sale in the States yet. There had to be a better way to help people discover the amazing music out there.

In my second year of b-school, I wrote a business plan for a media management class. Napster 1.0 had just launched, providing access to just about every song ever recorded. While cool, what I thought was most compelling was the Napster “hotlist” feature; if you were downloading music from a particular user time and again, you could click on his username, and then hit “hotlist” to see all of the other MP3s on his hard drive. It was like walking into a stranger’s home and checking out her record collection, knowing in advance that you shared musical tastes.

Then it hit me: DJs in the electronic music scene of 1990s London were often better known than the artists whose music they played. With so many producers creating so much electronic music in myriad subgenres, a listener needed a “music sherpa” to make sense of it all. It occurred to me that this DJ paradigm could be applied online, bringing order to the Napster hotlist feature, in effect, or to the vast expanse of music eventually available in a celestial jukebox. I wrote up a plan for a business I called Sampled & Sorted (a bit of double entendre to those familiar with the UK clubbing scene).

Sadly, I was unable to get the plan funded the following year, after the NASDAQ crash in spring 2000. A few VCs suggested I find another company doing something at least tangentially similar, and I ended up joining Live365. I worked there for 6 years, far longer than I’d expected. The company reached profitability in 2005, and I almost certainly earned my Gladwellian 10,000 hours. In 2006, armed with practical experience to better execute the Sampled & Sorted vision, I founded 8tracks.

I pitched Fred Wilson on 11/15/2006. While Fred thought my concept was interesting, he reminded me that he funds businesses, not plans. I needed to figure out a way to build the platform first, and ideally gain traction, before seeking funding. I enlisted my former Live365 intern and good friend Remi Gabillet, and we set about building the website. After a few missteps (Flex for one), we had a good-enough version ready by July 2008, and figured we’d go with the auspicious date 8/8/2008 for launch.

We saw good early take-up. Our launch coincided with closure of the very cool Muxtape, which led to some favorable coverage for 8tracks. The following spring, two playlists blew up on StumbleUpon: The Ocarina of Rhyme — a mixtape of classic hip-hop and music from the video game Zelda — and Songs that make you feel better — happy music for recessionary times. As a result, we grew 10X in a month, from 30k to 300k unique visitors. We raised some angel funding to ensure we could afford our growing royalty and Amazon Web Services bills. But we still had no full-time employees nor salaries.

Over the next 2 years we saw steady, continued growth, and we topped 2.5m unique visitors by spring 2011. Thanks to an intro by Alex Ljung of SoundCloud to Mike Volpi of Index Ventures, we were able to close our first institutional round and, in August 2011 (almost exactly 3 years after launch), hire our first employees. In addition to Index, the round included Andreessen Horowitz, 14W (backed by Len Blavatnik), SoftTech, English DJ Pete Tong and Atlantic Records chairman and CEO Craig Kallman. Equipped with a bit of cash from this $1.2m seed round, we could invest for growth — which we did, nearly tripling in traffic and reaching profitability within the next 2 years.

It’s been 5 years since raising institutional funding and hiring our first employees. We’ve faced a few challenges in the last couple of years — Spotify’s ascent, in particular, but also our removal of SoundCloud as an option in playlist creation and blocking access by listeners outside the US and Canada (the latter sets the stage for direct deals with labels and aggregators, a process that’s now progressing nicely, and we’ll be re-introducing 8tracks in certain countries in the months ahead). We remain the #3 pureplay internet radio service in the US (after Pandora and iHeartRadio) and draw 5m monthly active users across web, iOS and Android in the US and Canada.

I believe that the opportunity for digital music has never been more attractive. While 2 of the world’s most valuable companies (Google and Apple) offer music for strategic reasons, and the 2 top-of-mind brands for digital music (Spotify and Pandora) have raised billions, the market is simply massive and growing. Unlike other forms of digital consumption, music can be enjoyed while doing just about anything. If lean-back (aka radio) programming is sufficiently relevant in terms of taste and context, it’s the go-to option for most listeners, most of the time. Coupled with dead simple broadband access in the pocket (iPhone and Android), home (I’m bullish on the Amazon Echo and its imitators) and car (soon), internet radio could well become the most ubiquitous form of media mankind has known.

Where does 8tracks sit in this ecosystem? We’re lean-back that goes deep. If you ask most listeners what they like and dislike about Pandora, they’ll say it’s easy — but that it also tends to repeat, or draws from a (relatively) shallow pool. On the other hand, Spotify and SoundCloud now offer just about all recorded music. Spotify’s success with Discover Weekly notwithstanding, the top-of-mind use case for both is a la carte listening to a track, album or artist you already know. 8tracks lives in the middle, “packaging” music for any taste and moment in a scalable way, delivering the right balance of relevancy and discovery, while providing artists with exposure to an appreciative audience.

But we could be much, much better. Most critical to our future success is removing the friction for our DJs and listeners to do what they do. We’re building a music library to allow people to make a playlist without having to upload MP3 or AAC files; many (perhaps most) listeners in our core 18–24 demo don’t have music files lying around on their hard drive anymore, let alone on their phone. We’ll make our iOS and Android apps “feature complete” by including playlist creation in the months ahead. Listeners, in turn, should be able to open the 8tracks app and whatever playlist shows up first on home is exactly what they want to listen to right now, based on taste and contextual cues. There’s much more to accomplish in our data science game, so stay tuned.

We recently kicked off a crowdfunding round under Regulation A+ to allow the DJs and listeners who love 8tracks to invest directly in the company. This has only been an option for a year, and 8tracks is one of the first companies in the US to pursue this path. It’s a particularly good fit, as it is indeed our community that is 8tracks’ chief strength — 8tracks users create the mixes, 8tracks users share their mixes through word-of-mouth and social media, and so it stands to reason that they should have the opportunity to become owners in an economic sense as well. We’ll use the funding to reduce friction in listening to and making playlists, to ensure we’re available on all “dials” in home and car and anywhere else you’d expect to tune in, and to bring 8tracks back to a global audience. (If you’d like to participate, you can learn more or invest as little as $100 here.)

It’s been a long, beautiful journey. Thanks for listening, and here’s to the road ahead.

To celebr8 our 8th birthday, we’ve made you a special mix with 8 of the most popular tracks on 8tracks, ever. There’s a top track for each year since our journey began on 8/8/08. Check it out!

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://www.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.

A New Era for 8tracks

June 14, 2016June 14, 2016 | David Porter

One of the things I’ve learned since starting 8tracks eight years ago is that life is absolutely full of surprises.

In February, we asked members of our community if they’d like to invest in 8tracks, but we never expected the amazing response we got! Over 40,000 people showed interest in owning shares in 8tracks, so we embarked on a path to make it possible.

We began 8tracks with a simple premise: the best music discovery experiences happen through people. Today, every single one of the 2,000,000+ playlists people have created on 8tracks reminds us how a shared love of music can build a true community.

With funding, we’ll be empowered to bring 8tracks to a global audience, introduce support for new platforms, enable easy playlist creation on web and mobile, and create a better, more personalized listening experience for everyone.

After months of preparation, I’m happy to announce that 8tracks is now accepting investments through the SeedInvest platform. Join us!

Learn More About Investing In 8tracks

Thanks,

David Porter
CEO & founder, 8tracks

P.S. In the weeks leading up to this exciting news, hundreds of DJs and artists have shown their support by creating incredible handmade playlists to #back8tracks. I’ve included a few of our favorites below – give ’em a spin!

#Back8tracks Playlists

A lovely blend of selections from 2016 chosen by some of our favorite DJs and musicians!

“If I waited till I felt like writing, I’d never write at all”- Anne Tyler

the elusive peace that comes from within and journeys without

Together, we’re making crowdfunding history!

March 22, 2016March 23, 2016 | David Porter

This week, we’re filing with the SEC to make it possible for anyone to buy shares in 8tracks — making us one of the very first music companies to announce an equity crowdfunding round.

Over the past couple of months, we’ve asked our listeners and DJs if they’d contribute to this crowdfunding path for 8tracks. The response has been astounding, with over $30,000,000 of investment interest expressed by 30,000+ fans!

Sufficiently inspired, we felt the urge to channel our feelings through this playlist we made for you:

❤ You inspire us ❤

This type of crowdfunding hasn’t always been available to startups. Until last summer, only accredited investors — people who earn more than $200,000 per year or have a net worth greater than $1 million — were primarily allowed to buy shares in private companies without relying on very particular regulatory exemptions. Thankfully, the US Jobs Act now makes it possible for anyone to invest in emerging companies.

With only $3.3 million in total funding, 8tracks has accomplished much over the past 8 years — serving 16+ million listeners over time and streaming more than 20m hours per month.

New funding will allow us to bring 8tracks back to a global audience, extend access to new platforms in the home and car, and make it easier for listeners to find playlists they’ll love. We’ll also be equipped to pursue direct deals with record labels to offer a complete music library for making playlists on web and mobile.

The SEC normally takes two or three months to review applications, so we’re planning to launch our live funding round near the end of May or early June.

We’ve partnered with our friends at SeedInvest to help us through the equity crowdfunding process. Visit them here to indicate interest in investing and keep updated on our funding progress.

Learn more about crowdfunding 8tracks
Thank you once again for your support. We’re thrilled to embark on this adventure with you to make 8tracks better for years to come.

Disclaimer: © 8tracks, Inc. (8tracks) is “testing the waters” to gauge market demand from potential investors for an Offering under Tier II of Regulation A. No money or other consideration is being solicited, and if sent in response, it will not be accepted. No offer or sales of the securities will be made or commitment to purchase accepted until qualification of the offering statement by the Securities and Exchange Commission and approval of any other required government or regulatory agency. An indication of interest made by a prospective investor is non-binding and involves no obligation or commitment of any kind. To make an investment in any deal currently testing the waters on the SeedInvest platform available to the general public, the Company must first register and qualify the offering with both State and Federal regulators. No offer of securities will be made without a registration statement.

A change in our international streaming

February 12, 2016March 29, 2017 | David Porter

What are we doing?

On February 16th, we’ll change how listeners outside the US and Canada tune into 8tracks.

We’ll no longer stream from 8tracks’ servers to listeners outside the US and Canada; instead, we’ll offer the ability to tune into playlists on the 8tracks website via YouTube video playback. Unfortunately, listeners outside the US and Canada will no longer be able to stream playlists through the 8tracks iOS and Android apps.

Your 8tracks profile and any playlists you’ve made will not be affected and you’ll continue to be able to stream any playlists with tracks you’ve personally uploaded. All of your playlists will continue to be accessible to listeners anywhere our content is available around the world. You will still be able to make and share playlists with everyone, however, your personal listening experience may be limited depending on which country you are in.

Eventually, we plan to offer listeners outside the US and Canada the ability to tune into all 8tracks playlists through an on-demand streaming partner’s website and native mobile apps.

Beyond this on-demand partnership, we’re working to ensure 8tracks’ long-term success as a stand-alone global platform for everyone to enjoy.

Why are we doing this now?

In the US and Canada, 8tracks pays royalties to local collection societies for every track we stream. While we’ve neither actively marketed nor directly monetized 8tracks outside the US and Canada, we’re now seeking direct, global deals with record labels to ensure we’ve a solution for mix creation that extends to anyone who has the passion and knowledge to curate amazing playlists.

In the future, we’ll revamp and streamline mix creation and extend this experience to our native mobile apps. Because most people don’t have many local music files on their phones, we’re preparing for a future in which you can easily access millions of tracks from our growing music library (thanks to direct licensing deals).

In order to ensure 8tracks’ existence for years to come, we’ve concluded — at least for now — that delivering our programming to listeners outside the US and Canada through a licensed on-demand partner is the best path forward. We remain committed to bringing 8tracks to a global audience so all can join us in creating and discovering playlists for every taste, time and place.

8tracks blog

Author: David Porter