Founded by Skype co-creator Janus Friis and launched in August 2010, Rdio was one of the first wave of music streaming services. Today it operates in 60 countries, including the U.S, United Kingdom, France, Brazil and Australia, offers a catalog of 30 million songs and provides customers with two access points: a free, ad-supported internet radio service, similar to Pandora, alongside a subscription on-demand streaming offering.
The San Francisco-based company has never disclosed its subscription or user numbers, although its customer base is believed to be smaller than that of its main competitors — Pandora with over 75 million active listeners, Spotify with 50 million users.
However, CEO Anthony Bay is confident that Rdio, which he describes as a “hybrid of Pandora and Spotify,” is increasingly well-placed to bridge that gap, while also delivering an “artist-friendly service.” Billboard speaks with Bay to discuss artist holdouts, royalty rates, partnering with car manufacturers and the all-important issue of profitability.
Billboard: It is almost exactly a year since you were appointed CEO of Rdio. Looking back on your first year in charge of the company, what developments are you most proud of?
Anthony Bay: When I joined, Rdio was considered the best service but not very well known. From a design point of view, we are often considered “the iPhone of music services” compared to others being more like Android. It’s very beautiful product and service and we do very well inside the [music] industry and with people who know about us. But we weren’t as well-known as other streaming services like Spotify, so in September we launched an ad-supported personalized radio service. That was one of the biggest wins for us in terms of broadening the reach and broadening our audience. We have got what we think is the world’s best internet radio experience and we’re experiencing good take up on that. We also continue to grow the subscription business. We continue to launch in new territories and continue to add new subscribers and listeners there. We have experienced good growth and we’re happy.
What are your plans for the year ahead and, looking beyond that, the long term future?
Our goal is to have every song ever recorded available to listeners on any device at any time anywhere in the world and we are working on all of those things. We’re going to be expanding into additional territories. We’re going to be continue to build our catalog as well as the places that you can listen to audio — both in cars and internet-connected devices in the home. There is an absolute landslide of home audio devices that are out and coming and we’re actively involved in that.
2014 saw Rdio launch in-car apps with Volvo and Tesla for select car models. Are you looking to partner with additional car vehicle manufacturers?
We will have some announcements at CES in January that I can’t discuss yet. Cars are one of the primary places that people listen to radio and music, so it’s an obvious place for us to be and you should expect to see us do some pretty cool things there. Having a good experience in cars is critical — for us, for the car manufacturers, for service providers and for the music business generally. It’s a natural evolution. The hard part is getting it to work properly and have it be safe. Although you can use Bluetooth in cars and use an auxiliary cable in most cars, there is a limited amount that you can do on your phone and in a sense it’s just as dangerous as texting. The real take-off will come and the safety will happen when its integrated into the car in a way that radio as we know it currently is today.
Rdio also recently announced an expanded partnership with streaming set-top box provider Roku. Can we expect further developments along those lines in the year ahead?
The best sound system most people have in their house these days is their TV, so it’s a logical place [for us to focus]. The second thing is the TV screen gives you a great browsing experience. We can display the album art on a big screen and we have an opportunity to reintroduce people to a lot of the artistic and creative work that goes into albums. We believe that the TV experience is going to be very important for the music industry beyond just music videos and we have a number of new TV platforms that will be announcing at CES.
A recent story in The New York Post said that Rdio was targeting expansion into India and Asian markets.
We’re not yet at a place where we can confirm or deny. But it wouldn’t be that surprising to see us launch in other big markets in 2015. Our ultimate goal is to be everywhere. We’re at 60 markets right now and we will be much closer to a 100 by the end of 2015.
What are currently Rdio’s top five biggest markets?
That is United States, Brazil, Mexico Canada and Australia. We’ve had very good success in Brazil and Mexico with the radio service. It’s something that has never been there before and we have strong marketing partners in those territories. Rdio is now a company that has a subscription service and a radio service and, like any company, different countries and demographics will be attracted to different things.
The biggest streaming story of 2014 was Taylor Swift pulling her catalog from Spotify, although her music has remained on Rdio’s subscription service and your free, ad supported internet radio service throughout. Where do you stand on the issue of artist hold outs?
There is a lot of interesting debate going on and not necessarily a lot of good information. I don’t think Taylor Swift should give away her music if she doesn’t want to, in order for Rdio to be bigger. We have to earn her trust and that of other artists. That is really what the debate is about. It’s not about streaming or not streaming. The core issue is really about free, unlimited, on demand, listen-to-anything-you-want-for-free. Taylor Swift’s concern, as with a lot of artists, is to do with free-on-demand and what that does to people’s willingness to pay. So we took a different, more artist friendly approach with our radio service. Simon [Wheeler, head of digital at Beggars’ Group] said it best when he said: ‘If I pick what you listen to then that’s promotional. If you pick what you listen to then you should be paying.’
Do you think artist hold outs ultimately harm the viability of streaming services?
I think they do. But it has to be the artist’s choice. I don’t think they are wrong for feeling concerned. Many big artists held out from iTunes for a very long time and yet downloads eventually became mainstream. Garth Brooks is still not available digitally. [Garth Brooks’ music is available to purchase at Ghost Tunes, but is not available on streaming services. – Ed.] So there is a history of hold outs. I think an important question is: ‘Is an artist’s music on YouTube for free while they withhold it from streaming services?’ If so, why is YouTube seen as good and some other streaming service is bad? Because frankly it is difficult to argue that artists should be paid more for streaming while they are giving away their music on YouTube for free. We can let people identify exactly who is listening to their music, and pay them for listeners and that should be as valuable as who likes you on Facebook or follows you on Twitter. Our industry hasn’t done as good as job as it needs to in explaining this. Artists have to feel like streaming services add value. But it has to be this combination. Not just how big is my check? But how does this help me build the relationship between me and my fans?
Despite a significant increase in listeners and paying subscribers, no streaming service is yet to enter profitability. At what point do you foresee a company like Rdio becoming profitable?
Like the stock market, it’s hard to predict a date. But we know that based on us reaching a certain number of customers we can be profitable as we make a little bit of money on each customer — we certainly don’t get rich on an [individual] customer. Everyone in the industry knows what the royalty rates are. It’s a question of having enough customers and managing your costs properly. We are not building a large sales force which we feel is a smarter approach. In the U.S. we work with Cumulus Media, which has 1,400 sales people who sell audio ads all day. The basic formula is that we have to add more listeners and manage our costs frugally. We understand what it takes to get there, but it is hard to predict when it will happen.
The past 12 months has been a tricky year for many aspects of the music business. What are your predictions for the next five years?
I think the overall music business will be bigger. The best metaphor for this is, if you look at the movie and television business. A few years ago everyone saw Netflix as this terrible thing that was going to ruin the business. But what’s happened with the growth of Netflix, Amazon Prime and video on demand services is that all of the movie and television companies, for the most part, are announcing record earnings. I think music will be the same thing. When you have music pervasively everywhere in your life and you can access it more easily you will have a lot more people listening, a lot more people paying and a lot more advertiser funded radio moving to internet and digital.
The issue of royalty payment rates has dogged the streaming business since its conception. Where do you stand on the debate?
It’s a very touchy subject for everybody. If you look at all the people involved, there is the consumer who pays something. There is us, who is essentially the retailer. There is the distributor. There’s the actual label and there is the artist, who all have different deals. So it’s not just what we pay. It’s what works its way all the way through the system. Certainly, we structurally can’t afford to pay much more and that’s the problem that people forget. If you put services like us out of business then the industry isn’t any better off. Some artists have this belief that if people hadn’t streamed my music then they would have rushed out and bought it, and I think that’s a fallacy. There are far more people who are willing to listen to your music — even if you’re Taylor Swift — than would buy it. So I think the biggest shift coming is that artists will get paid when people listen, not just when they purchase and that both are important.
So it becomes about market share?
Exactly. In our service, the average subscriber listens to 600-700 songs a month. So if you are an artist who says: ‘I want a 100 of those songs to be mine.’ Then you’re essentially fighting for market share of listening. I think at some point artists will say to their fans: ‘If you really love me play my song twenty times a day.’ The subscriptions deals are based on share of listening. Let’s say we pay 70% [of revenues to rights holders]. It’s divided up by them based on the listening share of artists, so focusing on the per plays is not the right thing. It’s focusing on the aggregate. How do you maximize the amount of people who listen? That is where the business is heading.