Market, Vision & Positioning – The Second Investor Webinar

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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.

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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.

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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.

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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.

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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.

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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.