A shift for 8tracks in the US

8tracks-plus

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!

8tracks Plus - the best way to experience playlists

Start your free 14-day 8tracks+ trial


What is 8tracks? – The First Investor Webinar

8tracks fam at the loft

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.

 

Join 8tracks as an investor

 

More Investor Webinars

Market, Vision & Positioning - 8tracks Investor Webinar 2

 

Strategy & objectives - 8tracks investor webinar 3

 

 

 


*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.

A New Era for 8tracks

#back8tracks

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

8tracks Opens For Investment - It's All Because of You

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


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.

The Future of 8tracks

The 8tracks Community

Big news this week. After receiving over $33 million in indications of investment interest from 35,000 people, we’re taking the next step in our equity crowdfunding campaign and opening up the ability to reserve shares in 8tracks to everyone.

 Reserve 8tracks Shares Here
Our investment round will be launching in just a couple weeks, so we made this video to share a bit more about our journey and show you where we work (and sometimes live).

 

Investing in the Future of 8tracks

 

What Our Current Investors Are Saying

“8tracks is the future of radio.”

– Pete Tong | DJ & Producer, BBC Radio 1

“8tracks is more than just a music service — it’s a real community built on a shared love of music.”

Steve Aoki | DJ & Producer, Dim Mak Records

“It’s been amazing to watch 8tracks grow over the years. There’s simply nothing else quite like it.”

– Philip Inghelbrecht | Founder, Shazam; ex-YouTube

 

Latest Press

SF Station - 8tracks & the Power of Crowdfunding Rebels Among Music Streaming Titans

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

David Porter - CEO @ 8tracks

Taking their support even further, intrepid DJs on 8tracks have banded together under the tag #back8tracks to serenade you with hundreds of hours of tunes. Check ’em out here and enjoy a choice few we’ve handpicked below.

We’ll be keeping you updated with more news as our investment round launch draws closer in the next couple weeks. In the meantime, remember to reserve your shares beforehand here:

 Reserve 8tracks Shares

 

#Back8tracks Playlists

A subtle blend (and wide variety) of relaxing tunes — handpicked in a collaborative show of support by talented artists and DJs around the world.


Starts off slow and heats up in the end. playlist for good feelings. 8 little tracks in support of 8tracks


13 applewood-smoked, honey-glazed beats to power you through the day. Drool-inducing image credit goes to @maximillian.


I can speak for SpaceBunnies everywhere: A sound curator capable of both rational and irrational thought and emotion will beat a dumb computer algorithm EVERY SINGLE DAY OF THE WEEK.


 

© 8tracks, Inc. (8tracks) is accepting reservations 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 sales of securities will be made or commitment to purchase accepted until qualification of the offering statement by the Securities and Exchange Commission (the “Commission”) and approval of any other required government or regulatory agency. A reservation is non-binding and involves no obligation or commitment of any kind. No offer to buy securities can be accepted and no part of the purchase price can be received without an Offering Statement that has been qualified by the Commission. A Preliminary Offering Circular that forms a part of the Offering Statement has been filed with the Commission, a copy of which may be obtained from www.seedinvest.com/8tracks/series.a. 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.

 

DJ Tools: Bringing DJs and Listeners Together

8tracks DJ Stats

Here at 8tracks, we like to think of ourselves as matchmakers. We help people who love music share music–with people who love to listen to music. That’s why today we’re excited to offer three new tools (none of which is a fiddle, though we do serenade new hires this way).

 

8tracks DJ Stats

Analytics for DJs to get listeners’ feedback

For the first time, DJs can access an analytics dashboard that gives them stats about their playlists. It highlights the number of times a playlist’s songs have been listened to, liked, or skipped, and provides DJs with feedback from their listeners to help them make even better playlists.

Real-time feedback from listeners

DJs now have a notification feed that enables them to monitor the success (likes, comments, follows) of their playlists and the growth of their listenership. Everyone needs a little encouragement. Go on, enjoy your new adoring fans!

“Personalized tags” to help discover playlists you love, faster

We did not forget about our listeners! The new web version learns a listener’s music taste using their listening activity (liking, browsing, favoriting), suggesting relevant search tags that can help them discover playlists they’ll hopefully love.