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Slacker Builds a War Chest

Slacker Music

What do you get when you take three previous CEO’s from MP3/Online music companies and put them together in one room?   In the case of MusicMatch founder Dennis Mudd (MusicMatch, a pre-iTunes desktop music player, was bought by Yahoo in 2004) former Rio CEO Jim Cady, and iRiver CEO Jonathon Sasse, you get a company called Slacker that’s hoping to do what their prior companies didn’t – capture the digital music market and maybe even break Apple’s stranglehold on the $21b music downloads market.

To help in the effort, Slacker has just closed a $40m Series B financing from investors Centennial Ventures, Rho Ventures, Austin Ventures, Mission Ventures and Sevin Rosen Funds.  That follows a previous $13.5m round announced back in March.

Despite the lazy sounding name, Slacker has big ambitions. The company, which is based in San Diego but also has offices in Austin, launched to high praise and fanfare at Austin’s South by Southwest music festival March 14th.  Their goal is to try and marry three musical delivery channels into a single product.  Part 1 is a net radio station; personalized music streaming like Pandora or (bought last week by CBS).  Part 2 is a desktop music management application that marries the radio services with your own music files – like taking iTunes and giving it radio functionality.  Part 3, scheduled for later this summer is a small portable player that will synch with the software wirelessly via Wifi and also, can download new tracks via satellite through an accessory car kit.

The satellite feature is truly novel.  XM and Sirius, the two broadcast Satellite radio services, have the only communications licenses available for satellite radio by government mandate.  Slacker, in what is apparently an offshoot of Mudd’s graduate school thesis (which proposed using unused bandwidth for Cable Television to help people discover new music), uses proprietary technology to move data on unused commercial satellite signals.  Apparently, without issue from the FCC.

The basic slacker service is free and ad supported like traditional over-air radio. Unlike traditional radio, the ads are videos.  Users can also skip up to six songs per hour.  If customers want more selectivity and no commercials, however, they need to subscribe at a rate of $7.50 a month.  That fee will give them freedom to move through songs at their leisure; ranking favorites or skipping the undesirable.  Additionally, paying subscribers will be able to save songs they like on the player for replay later.

The Slacker player, which is expected some time over the summer, promises a large 4in screen and storage from 2gb to 120gb.  It will support up to 10,000 custom music channels giving even the most diverse listeners plenty of choice.  Thanks to the Series B financing round just closed, Slacker will have a big checkbook balance to try and market its services and roll out the player.   Sharing Austin will Dell, it wouldn’t be too much of a surprise if a distribution partnership materializes there too. Geography is often a good starting point in a friendship.

The Slacker value proposition isn’t a bad one (assuming they can deliver on it).  It starts with the theory that more people listen to the radio than buy music.  It follows with a hypothesis that personalization services available with technology are displacing traditional radio.   It then recognizes existing subscription services like Yahoo Music, Napster, or Rhapsody online, or XM and Sirius via satellite are flawed.  They all charge a monthly fee but once that fee is no longer paid users have no music to show for their payments, nothing left to play.  It’s like paying to access a beach you can already access for free.  You’re buying convenience of a better route, but nothing you can hold on to. 

Slacker’s solution is to give you convenience for free in the form of semi-personalized, portable radio….so there’s always music…you’re not married to your computer, your car or much else to hear it.  And you can still pay for a premium service, but if you cut off the payments, you aren’t stuck with an empty play list.  (Also unlike a similar effort briefly tried in the past by satellite radio, Slacker has agreements in place with the music labels to insure there aren’t licensing issues interrupting the music. )

The ambitions are huge, and the risks of failed execution are high but so is the promise.  The major press has all lauded the concept from the LA Times calling it “pioneering,” to The Motley Fool warning services like Napster to “Fear the Slacker” to PC Magazine which called it “the most exciting thing in digital music to happen in a long time.” 

Product unseen I can’t speak to the player but if the trio of execs pull off their stratospheric ambition, all the hype could be deserved.  Slacker’s a company in the music space to watch. 

Slacker may not come close to knocking Apple off their perch but subscription services  like Napster and Rhapsody have a potential competitor at their heels that could overtake them.  

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