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.

8tracks Video: The Power of Music & Internet Radio

October 13, 2016October 17, 2016 | Alan Poyer

Hear our CEO & founder, David Porter speak briefly on the power of music and technology, and learn how 8tracks is working to personalize your listening experience:

Join 8tracks as an investor before our round on SeedInvest ends on October 21 here.

What’s happened in the round so far? We’ve raised over $2 million, with 4,000+ people joining as investors alongside top venture capital firms Andreessen Horowitz and Index Ventures, plus superstar DJs Steve Aoki and Pete Tong (BBC Radio 1’s legendary DJ even made this playlist to #back8tracks!).

Time is running out to be a part of our growing investor community before the SeedInvest round ends on October 21. Invest as little as $99 to get access to an exclusive investor group, and as a perk, our investors also have free subscriptions to 8tracks+!

Become an investor before October 21

Strategy & Objectives – The Third Investor Webinar

October 7, 2016October 10, 2016 | Alan Poyer

Join us as our CEO and Founder, David Porter presents on 8tracks’ strategy and objectives, along with an investor Q&A session during the final 30 minutes. View or download the presentation slides here.

With just two weeks left, our equity crowdfunding campaign on SeedInvest is in the home stretch, ending soon on October 21.

Get shares in 8tracks before the round ends on October 21

1. Any plans to provide offline access to playlists like Spotify does? What about the ability to save tracks from playlists to your own 8tracks playlists?

Porter: So the answer is yes and yes. I will answer the second point first: the ability to add tracks from a playlist to your own 8track playlist. That will happen sooner, and really the gating factor there is having the deals in place to be able to support that, because the only way we can do that is if that track you want to save to your own playlist is available in our library. So if it’s available in our library, then you would be able to essentially favorite that track with a little star icon, and then that track will show up where you make playlists, so you can then add the track to your playlist.

The offline access I am really keen on. I love that feature on Spotify, frankly. I know that’s something which is really a nice differentiator, and the way that we thought about it (and again, this is unlocked by direct deals with labels), is that ideally we would have something where perhaps the last ten playlists you liked are automatically saved for offline access, and then another ten you can save permanently, or not permanently, but you can click a little toggle, not unlike what Spotify does, and make those available for when you are on a flight or on a subway and so forth. So offline access is definitely part of the plan.

That’s something we know has value. It probably will be part of the 8tracks Plus subscription offering, which is $2.99 a month. It’s an exciting feature, and we look forward to it.

2. Can you expand on what features the 8tracks Plus premium offering will have down the road?

Porter: Absolutely. I just kind of alluded to those in the last question, but my vision for 8tracks Plus is really four things.

Thing number one already exists, which is the lack of ads.

Thing two, and perhaps our most requested feature historically over the last eight years is more skips, and so 8tracks Plus will have a much higher skip limit so you don’t have that constraint.

The third thing is offline access, like I mentioned in response to the last question, and I think that will be really compelling.

The fourth thing is a feature that we’ll probably bundle into 8tracks Plus, but that will be part of our DJ offering in the music library we’re building out. Some subset of content will only be available to subscribers. It’s likely the bulk of independent content will be there for any DJ to access for free, but for three bucks a month you also get access to some section of content that likely would include some major label content, for example, and that then allows you to do a few cool things like I just mentioned in the response to the last question.

For example, if you hear a track and you like it, you can favorite it and it automatically gets added to your playlist creation page and then you can make a playlist from that. We had a feature like this in the early days of 8tracks, and it was this wonderful kind of virtuous cycle where you tune into 8tracks with music that you can’t hear anywhere else, or don’t hear anywhere else.

You favorite a list of tracks daily, and then every week or two you are like, “Okay, here is, of these twenty tracks that I favorited, these ten would make a fantastic playlist.” You create your own playlist with those ten tracks and then publish it and share it. It’s kind of this endless virtuous cycle of discovery and sharing, so we think that’s great for everyone: listeners, labels and artists alike. So that’s something we want to recreate with the new deals that we’re doing with the record labels.

3. I have been spending a lot of time exploring playlists on 8tracks, and I’m wondering about audio quality. Playlists are not normalized, and this results in an average user experience of having to adjust volume from song to song. I’m curious on how you plan to address that. Is there any plan to address the playback quality?

Porter: Yes, and great point. That’s actually something that we had experienced at my last company (Live365), where I worked after business school and before starting 8tracks. We developed a way to normalize audio. We haven’t had a ton of feedback on that specific point, but certainly if it made sense, it is something we could focus on sooner, and again, it’s one of those things that we know we would like to do, it’s just a matter of what comes first in the order of operations.

I think probably the most important point here is that we are gradually shifting from a world of uploaded content where people have ripped their CDs or purchased a song from some source and they upload it to 8tracks to create their playlist, and moving from that kind of world to where it’s kind of half-analog and half-streaming to a fully streaming model.

The direct deals that we are doing in all cases include us ingesting content from the aggregator that is in optimal quality, whatever quality we typically ask for and is standardized. So the fact of having these direct deals will obviate a lot of the consumer’s concerns about the variable audio quality. That should get steadily better over time as we do more of these deals, so stay tuned.

4. Do you have a number for current active users, besides the cumulative 17 million users that have registered today?

Porter: Absolutely. The number is five million monthly active users. I think we touched on that in the previous webinar. I’m always very cautious when I throw out the registered users number because I know in some ways that is kind of a bullshit number because it’s not all active, so good on you for calling me out on that, but the monthly active user number is five million. Again, if you look at the historical figures, there has been some decline apart from the aforementioned impact of Spotify and a few problems with pre-roll video on iOS. We also had to restrict streaming outside the US and Canada, so that was a big chunk, and again, that sort of artificially makes the decline look worse than it really is, at least in terms of the U.S. and Canadian audience. That’s the story there.

5. Is there any plan to do cool, original video content produced by 8tracks (acoustic sessions, studio sessions, artist interviews, etc.)?

Porter: Dare I say possibly? So kind of two thoughts: on the one hand, I want to make sure that we’re sticking to our knitting and are focused on the things that will deliver the most value, given extremely limited resources, so I feel like we don’t want to venture too wide.

On the other hand, one of our strengths is clearly this crowdsourced curatorial point-of-view. The first step towards something like that is happening right now with our kind of editorial/content marketing plan. After having done a little bit of research, we’ve heard that some of the best content marketing opportunities are actually video-driven. So we’re thinking a little bit about how we ought to approach that from our perspective, and we have done some of this in years past.

We had a VP of Marketing in the early days—actually, the wife of the Pandora CTO, my friend Tom Conrad. His wife, Kate Imbach, was our first head of marketing, and she did some great interviews with bands and those are up on the blog. So I think there’s a little bit of history there.

We have great connections with some of our partners like Red Light Management and some of the labels, so I think there’s an opportunity there. We just need to make sure we do it the right way. Because we don’t have a lot of in-house expertise on that, I think we need to make a key hire to lead that process, but our first experiment into kind of going beyond our core of playlists and adding in this editorial layer (whether it is text-based or video-based) is this content marketing plan that is being rolled out this next quarter.

6. Most of your competitors in the same industry have challenges reaching a global audience, i.e. Pandora, etc. Have you researched this area and what measures and plans do you have to achieve this, and by when?

Porter: Definitely. So we initially were available globally, and that was the way that we rolled out. In the early days of 8tracks, we didn’t necessarily know where our listener was located. We didn’t have the ability to identify the geographical location of a listener, and so we just kind of streamed and paid everything to Sound Exchange, a U.S. entity.

As we’ve become larger and more sophisticated, we’ve been able to distinguish. As part of us moving forward on bigger label deals, we’ve had to restrict streaming outside the US and Canada. We do intend to bring 8tracks back steadily over time, but I can’t promise to any time table. A lot of it depends on our success with crowdfunding and with the near-term road map. However, what I would say is that we are looking at, really, for any country there is a combination of perhaps three factors that we need to consider, which really relate to that first equation that I led off the presentation with.

First and foremost, are the royalties that we need to pay in that country affordable? Are they set at a level that we can actually have a real business, and relatedly, what is that business model? Because we sell advertising, if we don’t have a huge audience there, that means that we probably can’t justify having a direct sales team there, and therefore need to rely on programmatic advertising where it is sold through third parties or through another partner. So if it’s going to be an advertising model, who is doing the selling and at what levels are the RPMs or CPMs, and how does that map back to that royalty? There’s a little bit of homework to be done on the direct revenue side, and also on the direct cost side to make sure that the unit economics are in fact positive.

That’s one consideration, and the other is if we have a large and growing audience. This is kind of speaking to the ATH or hourly-streamed part of that equation, and relatedly, can we find a distribution partner who can help us drive that. I think the classic example would be finding a country where we could partner with a local mobile operator and we become an option for that service that is perhaps free, maybe with your mobile subscription.

If the operator had sufficient market power, they might be able to help us in negotiating good rates with whatever licensing bodies exist, or at least help navigate the waters with those licensing bodies, and particularly if they have a direct sales force, they too could help with the sales efforts, so we wouldn’t have to rely on programmatic as heavily because they already have salespeople that could be brought to help sell 8tracks.

We really need to look at each market that seems promising and consider those three factors in terms of royalties and a business or revenue model and distribution or marketing partnerships, and from that analysis we can figure which places to target first.

7. Have you guys discussed branching marketing into music festivals and concert series? These events have a large pool of new listeners and potential for long-term members along with the ability to gain support from musicians and DJs.

Porter: We have. A couple of years back as one example, we did a lot of work with Pitchfork. Pitchfork has its festival in Chicago every July, and they created their 8tracks playlist highlighting some of the acts that were going to be performing at the festival on 8tracks. I think there’s an opportunity there.

We don’t have a lot of dollars to promote ourselves there directly, or at least it’s harder to make that argument rationally. I think the best way to consider those opportunities is really in a similar vein where someone involved in the festival or maybe someone involved internally at 8tracks work together to create one or a series of mixtapes for the festival and those are used in the marketing collateral to help promote sales of tickets for the festival, and I think that is a really interesting way to get the word out and have great brand association with some great music events that are happening. It’s definitely interesting.

Again, I think it is a matter of resources. We want to actually build out marketing in a bigger way next year. Then I think that that can certainly be one area of consideration. There are so many things, and we try to take a very sensitive approach. We wouldn’t try and buy everything. We would try to find one or two festivals that were particularly a good fit for 8tracks’ audience and really execute those in a smart way where it is a win-win for everyone. If that goes well, then we can justify doubling down and bringing in more resources to make that a bigger potential marketing channel for the company.

Become an investor before October 21

More Investor Webinars

Market, Vision & Positioning – The Second Investor Webinar

October 3, 2016October 3, 2016 | Alan Poyer

Ever wonder how 8tracks compares alongside Spotify, Pandora, and others in the music streaming market? Watch our CEO & founder, David Porter present on 8tracks market, vision and positioning in this investor webinar. View & download the presentation slides here, and check out questions from investors below.

And don’t forget, our equity crowdfunding campaign on SeedInvest is nearing the end, with less than three weeks left to participate!

Get shares in 8tracks before the round closes on October 21

Questions From Investors

1. 8tracks has arguably the best networked playlist feature available online. Spotify and YouTube both have playlist features which offer limited functionality at best and barely incorporate any aspect of networking at all. They are probably looking to improve upon this, so what is being done to protect the integrity of playlisting as it stands in 8tracks?

Porter: It’s a good question. When I describe 8tracks to someone, they often say “Isn’t Spotify also about playlists?” In a sense, you can make a playlist on Spotify, but the most common use case for playlists in an on-demand service is organizing your music library to make it easier for personal consumption. For example, I saw the Cure this summer, so since I was kind of on a Cure tip, I put together a playlist which was basically all of the Cure albums, and that’s how I tuned in. But there isn’t necessarily that intention of curation for an audience.

I think there are a couple of things we can do at 8tracks, putting on a lens from the brand standpoint and a lens from a product standpoint. From a brand standpoint, it’s somewhat easier for us to focus on doing one thing well. We don’t do on-demand, so if we play our cards right, and can generate enough attention on our brand, we can be the place where you go for curated playlists.

One thing that we’ve been debating internally is that we’re increasingly thinking about shifting to the nomenclature surrounding a “mixtape.” I think in many ways, that captures what 8tracks is all about in a concise manner: it’s social, and there is this intent that one is creating this unique work of art for another person or persons. It’s about music discovery, but it’s also about putting together something that others will appreciate.

Even if you’re looking at a historical analogue, you have to trust the DJ — there isn’t necessarily the ability to skip ahead to the eighth track, then go back to the second track, and then jump to the fifth track, etc. So there’s this bond of trust between DJ and listener.

Whether we go with that particular nomenclature and brand construct or not, there is this notion of really doubling down on what we do best and making sure people understand that 8tracks is the home for curated playlists, so when people think “I’d really love to find a mixtape for my workout,” we want them to think of 8tracks first.

I think the other piece is on the product side. For the next quarter, a lot of our work is going to be focused on onboarding and matchmaking in a taste-based sense: making sure that listeners find mixes they’re going to dig and vice versa.

In the backdrop however, outside of product, we are working on licensing deals that will allow us to create a comprehensive music library. I think that is most likely the biggest ticket item we need to make sure we can keep pace with the other services. Where, if you do have an on-demand service and you can just drag tracks into a playlist without having to upload, they’re at an advantage.

As we roll out the new mixtape creation process that includes a library, we’ll want to be very thoughtful about the key pieces of metadata or context that really do set 8tracks apart. So when I think about a mixtape, it’s more than just a playlist: there’s a title, there’s a description, there’s tags (study, workout, chill, etc.), there’s people who like that mixtape, and there’s a relationship between the DJ and his or her listeners. All of that taken together is greater than the sum of its parts. I think it is important that we do distinguish the contextual elements that really make each mixtape a unique work of art.

I actually don’t know if the other services will double down on that aspect unless they see success on our side. One of the challenges of services like Spotify is that because they are offering so many different things, each individual feature becomes diluted. It can be challenging to try and do too much within one interface.

I feel like our differentiation and focus on doing one thing well plays neatly against that. We certainly can’t let up on our focus, but I do think that we have a clear path towards ensuring that we become ever more differentiated versus what some of the big box retailers of digital music are offering.

2. You mentioned earlier that your market is primarily 18-24. Is this the majority of people who would ever use this service, or do you plan to acquire more age groups?

Porter: Today, just over 50% is 18-24 and 88%, so nearly nine in ten, are 18-34, which is the millennial demographic. I tend to think the real way of slicing our audience is people who care about music. If you just want glorified “muzak” or sonic paper in the background, and don’t really care that much about music, then it’s harder to differentiate versus other services because you won’t necessarily see the value in 8tracks.

For people who love music, that’s a big audience. That audience does see the difference between 8tracks and others. We’ve tended to engender an audience that’s younger, simply because I think those people tend to be more leaned-in with music because they have more time. Also, that’s the segment that tends to be most appealing to advertisers, so from a monetization lens, I think it’s important that we have a nice story to tell agencies and brands about how we do attract the narrower demographic in high numbers. That’s useful to them and helps us get sales deals done.

For now, I don’t view this as a lifestyle site, so I don’t think we’re making any features to exclude anyone; the main focus is ensuring that people can find this incredible wealth and richness of music that exists, which they’re not going to be able to find on a lot of other platforms: either because they draw from a much shallower pool of content, or don’t have a great way to surface the gems that are out there. They are principally focused on an on-demand experience.

I think the demographic piece is a by-product of what we offer and the relative amount of time that the other demographics have. I certainly wouldn’t close it off to anyone. On the marketing front, our biggest focus in the near term is converting more people that hit one of our genre pages, explore pages, or the home page, and giving them an amazing experience. We do get lots of great traffic that comes in because of people organically searching for genres or things like study music, dinner playlists, or workout music.

Given our scarce resources, that’s where we get the biggest bang for buck in terms of investment. Starting this quarter, we’re also going to experiment with content marketing, which really is a much smarter approach than purely paid acquisition, where we highlight interesting content that’s bubbling up on 8tracks and that we think would be appealing to a broader audience if they knew about it.

One quick example I’ll throw out there is Stranger Things, which is an awesome show on Netflix – an original series. I saw one mixtape bubble up on my homepage the other day and I was like “oh there’s probably more of these!” I looked and there were 200+ playlists that were essentially unofficial soundtracks for Stranger Things, which is amazing!

Given the popularity of this show, why shouldn’t we be highlighting some of the best Stranger Things playlists with a bit of editorial about the the 80s synth movement and how that ties in with the storyline and so-forth. Why not put it out there, highlight it on our blog and get a bit of love on some of the social platforms? If it spreads, that becomes a way we can advertise authentically and highlights how we’re unique or different, and gives people a nice entry point to discover 8tracks. It’s those kinds of things that I think will drive marketing broadly, irrespective of the age demographic.

3. What’s your vision for the international market and will the site remain “crippled” for international users?

Porter: Thanks for asking, and I’m sorry that we ended up having to cut off streaming to the apps and limiting it to YouTube outside the US and Canada – that definitely was not my desired path. We had no choice but to do some of these restrictions in order to get direct deals done with labels so that we can create a music library, so that DJs don’t have to be uploading because a lot of our audience no longer has downloads lying around on their hard drive or phone. However, we do want to bring streaming back in a full way internationally.

The way that I have long talked about it internally is that there are three things we need to do to introduce ourselves properly to a new geographic market or country. One is making sure the licensing is tied up so that we have direct deals in place and can populate our music library in a comprehensive way.

Second is making sure we have a proper monetization engine. Traditionally, our main path to monetization has been advertising. That can be more challenging in a market where there is a smaller audience, because agencies and brands typically aren’t interested in buying advertising with a publisher like 8tracks until they reach a certain scale.

We have to be thoughtful about how we make the unit economics work, which is to say for every hour we stream, can we generate enough money from some source, whether it’s advertising, subscription, or something else versus the relatively high music royalties that we have to pay, and even streaming costs for the bandwidth and so forth, but the vast majority of direct costs is royalties. We need to make sure that we have been thoughtful about the unit economics so that we are not just bleeding money and really hurting our long term success.

The last piece for international expansion is thinking about finding a great distribution partner. In countries where we historically have had a decent audience, that may be less necessary, but certainly if we are going to go into a new market, finding a partner like a mobile operator would probably be ideal. Not only in providing some negotiating leverage and getting deals done, but also in providing distribution so that more people will find out about 8tracks in that market.

That’s my overarching criteria. The biggest focus we are going to take in the near term will be on Europe and in particular the UK. We’re talking with applicable licensing bodies about doing deals now. Fundamentally, 8tracks is all about global access to content and it is that plurality of voices that makes 8tracks special, so I think it’s important that we return 8tracks to a broader audience.

4. It’s worth noting that a big part of 8tracks’ content generation comes from the DJs. Have there been any thoughts on developing a partnership scheme with them to nurture the creative work they already do and bring it to the next level, much like YouTube has done with its users? Has any substantial contact been made with major DJs in the 8tracks network to explore this?

Porter: Good question. We haven’t done anything like YouTube where we are working more closely with creators to come up with the original content, for example. I think it’s a little bit of a different beast in our case. The closest thing to that is our resident DJ program. Sam Peterson who heads up community management for us, is in regular contact with our top DJs.

We do have a program in place today where we farm out curation of playlists for a sponsor – a brand. I think that’s a neat thing because we obviously have great curators, and if we can find a fit between the type of programming a brand is looking for and the programming talent that one of our DJs can bring, then there is a natural fit there.

We haven’t scaled that type of arrangement, but I do think there’s a lot of long-term promise for that. I think in a couple of arrangements when we’ve done this, the DJs have been brought into the revenue, and so they actually get a slice of the advertising revenue. There’s definitely some potential there.

I also think there’s an important opportunity for 8tracks to better surface our DJs – to really bring the fact that 8tracks is humanly curated to the floor, and to highlight DJs who’re doing great things for us, and doing this coming from an editorial perspective.

We’ve been talking about that a little bit internally with our Community Manager, but we’d like to come up with a smart, scalable program which highlights, for example, a DJ of the day or week. Maybe, we can even do that on a little more granular level based on styles of music, genres or other tags.

5. By investing in the company, we are being awarded shares in it. When will the company be open to the stock market? Will there be pay of dividends?

With this offering, it’s not an IPO. There isn’t any guaranteed liquidity of shares on the open market. To be fair, as I understand it, if one wanted to sell their shares to another person, one could do that — it’s not our rule to say no to that. There just isn’t a liquid market.

At some point down the road that’s a possibility, but I think it would be more likely that 8tracks would see acquisition as a path rather than going public. That would be the most likely path to liquidity for anyone investing in this round., and that’s the same as with any other investor on the institutional side in times past.

6. Doesn’t Spotify also offer user-curated playlists that can be shared amongst the community of listeners, including other social networks?

Yes, one can make a playlist on Spotify and I think there are several differences: one thing is that’s not what most people use Spotify for, so that’s not the top of mind use case. I think in practice if a listener goes to Spotify to use the app on desktop or mobile, they’re primarily going there to listen to music in an on-demand capacity.

They haven’t done, at least to date, a very good job in separating wheat from chaff in terms of the quality of user-generated playlists. Or even really in surfacing those in an easy and digestible way. A lot of playlists people have created as their default public playlists are simply six albums that they are listening to this year, perhaps along with a few tracks that they read about on Pitchfork or something. There isn’t necessarily that intent of curation in terms of a specific theme for an audience. It’s sort of like that toolset is there in part, but that’s not how people tend to be using it in large numbers, at least not in a primary use case.

The other point I was mentioning earlier is there is this notion of context around an 8tracks mixtape. There is a title, there’s cover art, there’s a description, there are tags, comments that listeners add, likes that listeners add, there is a relationship that develops between DJs and listeners. That whole thing is better than a set of tracks that have been taken at random for personal consumption. It’s just very different from simply aggregating tracks into a list.

I think we do need to be aware of what Spotify develops in the future, but we have a very focused offering. And there’s a lot more we can be doing to enrich the curators’ experience and to develop the relationships between DJs and listeners, so even if Spotify did come down this path one day, the DJs would be less likely to leave because they have their audience here and the listeners who tune into that DJ would be less likely to leave because the DJs they love are also on 8tracks.

7. Do you believe voice-driven services like Amazon’s echo will continue to increase in importance, and how do you see that shift affecting 8tracks?

Porter: I do. I think (and I’ve said this to the team), if you look at the breakdown of music listening, more than half of music listening happens in the home and in the car. I think in both of those instances where you are essentially alone – not in the public space, the shortest path to getting music that you like is to talk to your device.

Amazon Echo is the first service that really works well. It’s always on and it delivers the goods by and large. Clearly Google home is hot in pursuit on the same path, and the CEO there has really doubled down on AI as the future of the company. Apple with Siri: I don’t think Siri works particularly well, but clearly they are going to make sure they have a device that competes.

Whatever the user experience ends up being in the home, I think we’ll see something analogous in the car where it’s even more important that the user not be messing around with buttons on the dashboard, and rather can talk to the device that’s tuned into the dash to play relevant music.

I really think this presents an interesting opportunity for 8tracks in particular. What I’ve found with Amazon Echo where I live, is that when I want to listen to music, it’s kind of hard without looking at a playlist to think of specifically what kind of music I want to listen to. Say I want to hear New Order, and that makes me think “okay there’s also Depeche Mode and the Cure.” So maybe I want to tune into one of those artists in an on-demand capacity, or use those artists as a seed.

It’s really hard when you don’t have a list to go very deep and quickly. What I am much more inclined to want to do is talk to my device in human terms and say “Alexa, play me a playlist or a mixtape that would be great for studying and that includes Depeche Mode and New Order.” The beauty is you can talk to the device in human terms in a very organic way and it can play music back when it’s plugged in.

I think what’s important from a competitive standpoint is that we’re really the only service that can do that type of granularity by context which goes super deep. For example, you can combine workout or study or party or dinner party and then pick any one of a myriad of artists, and you will actually get a result that is meaningful and relevant. It’s really thanks to our DJs and the evolved tagging system which allows us to do that. As a result, we’re particularly well placed to take advantage of this shift to navigation through a voice interface.

8. With all the background work you need to do, it seems you are many years away from profit. Is that the case?

Porter: There are two axes I think about in terms of overarching objectives for 8tracks. One is growth, and by growth I mean growth in the number of listeners and number of hours streamed. The other axis is profit. Really the most important part of profit is profitable unit economics. Meaning for every hour we stream we are making money because our revenue from advertising or other sources exceed our costs for royalties and Amazon web services.

The more we can make that profit per hour thicker in essence, the greater the contribution margin per hour. That lowers our breakeven point so obviously if that number is positive, then it’s just a matter of scale to be able to cover your overhead: the rent and primarily people cost. Then eventually, pure net profit. The opportunity is there: we’ve modeled this out.

I have a pretty ace head of finance in Sam Filer, who has a great background. He’s a public accountant like myself and has worked in finance. He and I have worked on several different scenarios with models to project when we will return to profitability.

We firmly believe we can do it, without crazy top line growth, over the course of the next few years. It would be irresponsible to think we could get there in the next 12 months, but I do think we have a real shot at it using as the inputs discounted comparable figures from the public information available from Pandora. So if we know that Pandora generates x dollars per hour streamed, we give that a healthy haircut, and can then use that as a target for ourselves on smaller scale, we can get to some reasonable projections for getting back to profitability. It’s definitely possible, but we do need resources to get there. Hence, the reason we’re moving forward with this investment round.

9. Is the music catalog available in 8tracks comparable to that in Spotify, Apple Music, etc?

Porter: What I know about Spotify (and Apple Music is probably pretty similar) – about half their music never gets played. I don’t think it’s necessarily the size of the catalogue that matters, it’s more that the music that people want to hear is added to playlists via curation.

With 8tracks so far, we have around 9.5 million tracks directly licensed in our catalogue, and obviously we’ve been primarily focused on allowing the user to upload music, so the grand total is far, far, far in excess of where Pandora is. I believe they have a couple of million tracks at most in their catalogue for streaming.

Again, when you are thinking about a radio service rather than an on-demand service, you don’t necessarily have to have all the music. The stuff that isn’t as popular or good may not be in a playlist that a curator has put together or that an algorithm has selected. It’s really more about having the right music as opposed to having all the music.

But again, there is no limitation on what DJs can have on 8tracks — DJs can upload any music that exists as long as it can be lawfully distributed to the public. If the music’s good and someone cares about it, and they want to make a playlist including 8tracks to promote it, that path is there.

10. Should 8tracks begin to gain significant market share from other streaming competitors, what barriers exist for those competitors to potentially copy 8tracks’ curation niche? Secondly, if you have 5M visitors now what is the potential vision for number of visitors in 5 to 7 years?

Porter: On the first question. I think, I alluded to this a little bit earlier: if people want to start copying, that’s certainly a good problem to have because that means we will have made significant strides. I do think, in our model, it’s a marketplace model, meaning there are network effects.

The more sellers (i.e. the DJs), and the more buyers (i.e. the listeners), provided there are relationships between the two (people favoriting tracks, liking mixes, commenting, finding DJs to follow, etc), and we have the smart algorithms that help connect the dots between the two (the matchmaking I referred to earlier). Then, there are real switching costs. There’s an investment on both sides of the equation in the service and each part is less likely to leave for a competitor. I think that’s one source of competitive advantage that’s real amongst the people that use 8tracks.

We already are the top of mind brand for online mixtapes and curated playlists, because that is the one thing we do and we do it better than anyone else. But I think really driving home that aspect of our brand, and turning up our dial by getting the brand out there through more marketing, that will probably be our reaction at that point in time – just to make it clear to the market that we do it best.

To summarize, I think there’s positioning in the market that benefits us, on which we can turn up the dial from a marketing perspective, given the cash. And there’s also the fundamental dynamics of a marketplace model that features network effects that we already see in place, and that would only grow with the growth and traffic that would attract the attention of a competitor.

11. Do you have a UX roadmap for enhancements? Also what distinguishes 8tracks from soundcloud?

Porter: We do. There are a couple of big things lined up over this next quarter. One is making sure our analytics are solid and accessible. This is really a precursor to a lot of product development, so when we run an experiment with the site or apps, we’re actually getting a good yardstick to measure success.

The other big thing is better conversion and activation for brand new users. In a word, what that means is onboarding — a better experience for people who come to the explore page for the first time, 8tracks.com/explore/study for example or 8tracks.com/explore/workout or 8tracks.com/explore/indie_rock, you name it — or the homepage.

In both cases we could do a far better job making sure people understand what we are and how we work, both in a visual way and a functional way — while giving people an easy way to just press play and get an amazing result. That may mean for first time users, we present content that’s most popular overall, or even combining that with editorially selected content that best represents particular genres or tags.

At the same time, we need to ensure ways for the listener to get more granular with their search. That really comes down to taste capture. For example, on the hip-hop page, we can certainly provide “essential hip-hop” from 8tracks. We should also give them ways to pick an artist related to hip-hop so they can get more granular with their search very quickly.

On the home page, there should be a strong onboarding where we encourage them to give us information about the context in which they typically listen, and what sort of artists they would expect to hear in that context. We’re focused on getting better about how we get cues about people’s taste early in the process to ensure they have a fantastic experience.

If we do that well, they’re far more likely to come back the next day or the next week. That’s the immediate term UX focus. As I mentioned earlier, there will be more we’ll be doing on the DJ side to expand our licensed music library, which is a priority for our business development efforts this quarter.

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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. 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.

NextGen Crowdfunding Interviews 8tracks

September 27, 2016September 27, 2016 | Alan Poyer

8tracks’ Head of Business & Corporate Development, Tuhin Roy is interviewed at NextGen Crowdfunding’s ‘Ignition’ event. Interview questions include:

What distinguishes 8tracks from other music streaming services out there like Spotify and Pandora?
What kinds of music do people listen to on 8tracks?
How do you handle the music licensing aspect?
How do you plan on monetizing the product?
How do you approach marketing to acquire new users?

Find out why over 3,900 investors are backing the #3 internet radio service for US millennials, including top venture capital firms Index Ventures, a16z, & SoftTech. Learn more or participate in 8tracks’ investment round, ending soon here on SeedInvest.

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What is NextGen Crowdfunding?

NextGen Crowdfunding helps people explore the new era of equity crowdfunding. With unique in-person events and live streaming video content, NextGen enables individuals to discover, research and support specific companies launching crowdfunding campaigns.

*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 fromseedinvest.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.

What is 8tracks? – The First Investor Webinar

September 26, 2016September 26, 2016 | Alan Poyer

Want to know more about how 8tracks works? Take a look at the slides and Q&As from the first investor webinar for our Series A equity crowdfunding round, presented by our CEO & founder, David Porter.

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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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.