May 9, 2013 at 10:22 am

The Key to Slacker’s Rumored Profitability That Nobody’s Talking About

slacker soundexchange

When I broke the news (no, not this news) about Slacker Radio back in 2007 after receiving an amazing reader tip (I wish I could tell that story), it was still called Broadband Instruments. Part of its plan was to buy up Ku band satellite bandwidth so that it could load up its hardware players with music without relying on WiFi, USB, or cellphone towers.

Much has changed about Slacker Radio since then, including its name and that satellite plan. When the iPhone came out, Slacker’s hardware player no longer made any sense, so it became an app exclusively. And this past February, it finally abandoned the “Designed by your uncle’s ‘cool dude’ Harley Davidson friend” look in favor of a tider, updated, Web 2.0 feel — a major, much-needed improvement that many credit with the service adding six million new listeners and making a dent in the mainstream press this week.

However, nobody seems to be talking about what makes Slacker Radio different from Pandora, iHeartRadio, or any other popular internet radio services: It doesn’t pay royalties to SoundExchange. Instead, Slacker negotiates direct licensing from record labels and music publishers.

This arrangement does at least two things for Slacker.

First, it allows Slacker to let people store stations “offline” by caching them on their smartphones, so that they plan on airplanes, subways, and anywhere else where WiFi and cellphone connections are scarce, slow, or non-existant. This is a crucial feature for the future of media, and you won’t find it on Pandora or any of the other major streaming radio services that pay SoundExchange, because that license doesn’t include offline playback.

Second, as Slacker has confirmed to me in the past, it pays a lower royalty than its competitors who pay SoundExchange, which is likely a big part of why Slacker says it will be profitable by the end of the year whereas Pandora will not — and why Clear Channel is pursuing direct licensing as well.

Is this an indication that internet radio royalties are too high? Don’t tell a recording artist that — after all, they’re even complaining about Pandora’s payouts. Maybe it’s just that music is still too expensive to be free and too free to be expensive.

  • Tom

    I though Slacker did pay royalties via Soundexchange for their non-interactive streaming.

  • Tom Green

    Eliot – if Slacker can be profitable by negotiating directly with labels and music publishing, it seems like something that Pandora would want to do too. Why aren’t they doing it? Why does Pandora go through SoundExchange instead? Is it cheaper? And Is Slacker more profitable because they charge uses a premium ($9.99) for offline mode, while still having the same sort of free model available like Pandora? -Tom (music UX)

  • Emmett McAuliffe

    Yo, you dont need to pay any roayalty – low or high – just to play the music *you own* back to yourself. Same goes for music you borrow from the public library.

  • Len

    No other music service allows a user to cache radio stations and now I understand why….