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Earbits
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Didn't they say this would be profitable at scale? I guess $1.1B isn't scale.
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I won't pull any punches about Spotify being a bad deal for artists, but BitTorrent is legal and not anymore responsible for piracy than the internet itself is. They are both platforms that enable the transfer of content, and both are used to pirate that content. You could use BitTorrent to make Netflix a faster service, or any other number of uses. The fact that some people use something for illegal gains doesn't make that thing inherently bad, lest we have to throw away all of our kitchen knives and crowbars.
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Thank you, Bruce. We've appreciated Hypebot's objective take on the industry and our platform for four great years. Just fyi, we actually raised $1.7M in funding, and just did not announce it after the first seed investment of $600k. Thanks again. -Joey
Toggle Commented Jun 16, 2014 on Indie Music Streamer Earbits Shuts Down at hypebot
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I really think this comes down to how you value music. A movie ticket costs $12 and lasts two hours. A Starbucks latte cost $4 and lasts 30 minutes. If I love even two songs on an album enough to listen to them dozens if not hundreds of times, and more importantly own them forever, I think it's ridiculous to say that's not worth the price of an album. If the entire album is incredible, $14 is an absolute steal. What other form of entertainment can you buy for that price and enjoy for years, over and over again? Thinking this should cost just two dollars for two tracks seems totally out of line with how we value all other forms of entertainment.
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I can't believe nobody is calling them out for having different royalty rates for different content. They released their payout data in aggregate, without mentioning that the major labels have most favored nation agreements and earn more than everyone else. Sure, they pay out "nearly 70%". What % of revenue do people get paid who upload via Tunecore? Do they get 70%?
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Did they just say they're the first streaming service to integrate Topspin merchandise for artists? Sorry, I could have sworn I saw us do this over a year ago. Welcome to 2012, Spotify. http://www.hypebot.com/hypebot/2012/07/earbits-rado-redesigns-teams-with-topspin-for-merch-get-1-month-of-topspin-free.html
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Commenting on the early discussion about Spotify being so much larger and having such a stronger war chest. It probably should not be discounted that Spotify gained a ton of momentum in markets that had far fewer options. Rdio and Rhapsody have been trying to compete in the US against nearly all major incumbents and a million other sources of entertainment. Spotify grew in countries that have fewer options and didn't come here until they had critical mass and a lot of buzz. Then, you'll notice that they missed all kinds of targets and have not had anywhere near the 50M users they swore they would in the first year. Competing in the US is much harder. Spotify seems dominant, but much less so if you look at only their position in America.
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Actually, the problem with Pandora isn't that it doesn't create a spark or that the discovery it could provide isn't interesting to people, it's that they're not doing a very good job of it. The reason is simple: adding emerging or obscure music to their library comes at a great operational cost, and provides less value than adding the latest Bieber track. Pandora is effectively a search engine, but the "results" they generate are limited to what's in the genome. If 1 million people search for the new Rihanna track, they are highly incentivized to make sure it's in the system. With each album taking incredible time to classify by a well-trained music expert, every album they add has to be important enough to justify the cost. Simply put, adding less-known music for the sake of being great at discovery isn't a strong enough business interest for them. Their biggest priority isn't introducing people to new stuff, it's giving people what they want, which are the things they already know. Unless Pandora aligns their business model with discovery, they'll never be much better at it than they are now. To say that people don't want it because one company isn't good at it has been a proven bad bet, if you look at items like MP3 players. Music discovery might be a burned out buzzword, or getting close to it, but that's because a million people claim to be doing it, and they're all doing a shitty job, because they're not in the business of music discovery, they're just trying to make it a side-goal of another business.
Toggle Commented Jan 28, 2013 on Music Discovery Is A Burned Out Phrase at hypebot
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After months of everybody demonizing Pandora for seeking the same rates as Sirius, and everybody saying that they're too low, are a bailout, and all kinds of other irrational complaints, I will be interested to see if those same people are up in arms about how terrible this 11% rate is for artists.
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That is accurate in theory but not practical. The bulk of Pandora's listeners are there to hear mainstream music with some discovery mixed in. In addition to the operational burden it would impose to acquire licenses directly with thousands of small rights holders, it still wouldn't make up for the millions of Coldplay streams they serve up every month. They will have to get reduced rates on mainstream content if they are to survive, and once they have, they have even less incentive to play emerging music at a higher royalty rate, or greater operational cost to acquire the content. So, yes, they could do what you're suggesting, but it would take a long time, a lot of money, would be a huge shift in their product offering, and still wouldn't address the content most sought after by their audience. Long story short, what is best for the industry is for them to have a sustainable rate that lets them play what they want to while paying an equitable fee to a wide variety of artists.
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I agree that it might be more artist-friendly if Pandora were lobbying alongside creators to bring other broadcasters' rates up while bringing their rates down, so that all companies pay a strong percentage of their revenue for the use of music. But unless the labels are going to get behind a rate decrease for Pandora in exchange for a rate increase from others, Pandora doesn't have that option. Without it, their only recourse is to lobby for them to be treated like everyone else, which is what they're doing.
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Okay, well, seems to me you're most concerned about the way copyrights work in general, yet painting Pandora out to be the bad guy for working within a system you don't like. It's like protesting a particular fighter in the UFC because you don't like cage fighting.
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My primary suggestion for improving the process is that the rate be based on a percentage of revenue just like all other rates in the space. Saying that Pandora ought to pay a total of 40% for the music that their business relies on sounds pretty reasonable. Maybe even 50%. Picking a per-stream number based on a historical willing buyer willing seller standard that doesn't take into account what the actual value of the material is, or that this is a new industry, doesn't make any sense. If that rate-setting organization picked $6 per stream, should we just assume they're smart people who know what's best across the industry? Isn't it reasonable to reassess the rates every few years based on the outcome of the previous rates? We're in year X of absolutely no company being able to build a sustainable business on the current rates. Why is it unreasonable or evil to ask for a reassessment based on this fact?
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Jeff - I value the ferocity with which you defend artists, and I feel we both have our hearts in the same place, but there are at least two things about this article and argument that are disingenuous. Saying, "they need their company to become more profitable" about a company that is not profitable is misleading. You never mention in your entire article that no company, including Pandora, has yet to turn a profit under these compulsory licenses. This is not a situation where a company is thriving and looking to increase margins, as your article implies. Zero companies have been able to make these fees work, and it's silly to assume that it's because they aren't selling their ads for enough. The second thing that gets left out of these arguments is what a fair rate truly is and why you think the unsustainable one Pandora pays is the right one. I don't see artists up in arms that Sirius is ripping off artists, and they pay considerably less. Why is it so evil for Pandora to lobby for the same rate that other companies in the space pay? More importantly, what is the justification for the rate being what it is? Why not make it 6 dollars per stream? Is that more artist friendly? Sure. It's completely unreasonable, but it's a "wage increase" for artists, so let's lobby for that. We can all recognize that $6 per stream is ridiculous. I would argue that the rates Pandora pays are also ridiculous. Other than thinking artists should earn more money in general, I have yet to hear a compelling argument for the rate being what it is.
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You mean a $3M gross margin run rate. The revenue run rate is $20M+. Also, they only take 10% for artists who earn over $5,000.
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I find it disingenuous when you say they are mandated to "give away their work", when the net broadcaster licenses have so many restrictions about how the music can be used that make it almost impossible to hear the song you want when you want to. I also don't know any artists who don't want to be on the radio. And, yes, I am aware that half the payment goes to artists, which is great. That's why I'm advocating that the compulsory licenses need to be usable, so that the 50% continues to flow to artists instead of going through the major labels, who are notorious for keeping all of it.
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Hey Allie, These are all very valid questions. Taylor Swift can opt out of Spotify because it is an on-demand service where people can play the specific song they want to hear anytime. There are no blanket licenses that let companies run a service like Spotify, so Spotify has to get permission from the owners of the music. Some artists have the power to hold a recording back from being used on these services. Pandora, on the other hand, operates under licenses that say they can play any song they want as long as they mix it with other music, do not play it too frequently, do not let users access it on-demand, and so on. There are restrictions for how they may use it, and pre-determined rates they must pay. If they play by those rules then they can play whatever they want and artists can not opt out of that, to the best of my knowledge. The rates that Pandora and other Internet radio companies pay are higher than any other broadcaster, such as FM radio or satellite. These rates are so high that no company, Pandora, Last.fm, Clear Channel, and so on, has been able to build a profitable business around them. Some people believe that these companies aren't doing a good enough job to earn revenue and that it is not fair to penalize artists by reducing the rates so that these companies can make money. I and others believe the rates are simply too high, and that if you give these companies more affordable rates, they'll grow far larger than they are and contribute way more money to the industry. The point of my article is that if we do not make the rates more affordable, Pandora will have no choice but to try and get cheaper rates from the major labels, and nearly anytime a company is in direct license with the labels, other artists get played less, and get paid less. Even the artists on the major labels will most likely see far less revenue if Pandora is forced to work with the major labels directly, since the label often holds up their payments. It's all quite complicated, but the result is that it's just not a healthy industry, and nobody is winning right now. It's unfortunate but the entire industry is made up of groups trying to squeeze as much out of everybody as possible, instead of looking for ways to create mutual value for each other as partners. I hope that helps. Thanks for the question. -Joey
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We are a direct-to-fan platform with the same bells and whistles as other artist marketing platforms, except that we provide a compelling consumer experience that brings the audience to our artists instead of asking them to run around tweeting about themselves. This format rewards artists with great music, instead of the ones who make the most noise online. You want to know how it helps our artists, ask them. You have no idea how many emails we get from artists thanking us for building something that works, that does not take up their time, and that gets their music heard. 80% of our artists have never spent a dime on Earbits, and we've generated tens of thousands of contactable fans for them. I see no reason why a artist marketing platform suddenly becomes worse because it actually attracts its own consumers. I'm sorry that you prefer the models of old and don't understand that the Internet has opened up new possibilities for serving unsigned and independent artist better.
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I never worked for LowerMyBills. I worked for Experian marketing 3rd party advertisers only. I don't know a thing about the mortgage business and there is no sordid past. I'm done humoring you.
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Technically, they won't be seen as a monopoly. In fact, the merger of two of them is already being approved. The best way to displace this monopoly is to keep empowering the independent and unsigned markets, and keep building services that make the major labels unnecessary even for superstars. There really is no need for them in the future of music, unless they start contributing something better.
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Yeah, Clyde, despite David's efforts to paint me as an evil person, this is not a bad look for me. I ran business development for a startup that helped 3rd party advertisers connect with 3rd party publishers. We empowered hundreds of small businesses and individuals. We were purchased by Experian and merged with two other companies. While they used cheesy dancing alien ads to promote in-house properties and took a massive hit during the mortgage crisis, I took the 3rd party portion of their business into mine to manage. We never made our own ads or came up with ad copy, nor did they do anything like that article implies while I was there. I grew my division from $19M to $48M in two years, while taking over another $12M from the two sister companies. I didn't particularly care for the culture there, so I left. Just months later, they shut down my division because they didn't know how to operate this completely different business. I couldn't be more proud of what my team and I accomplished in building a company from nothing, to being acquired, to growing in a recession. I aim to use this experience in building another marketplace that helps artists this time. It's a shame that David can't just accept that someone might have artists' best interests in mind, and still hold a different opinion than him on how best to achieve it.
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I understand your sentiment, but you have to remember that the major labels have a monopoly on the content necessary to building a mainstream broadcasting company. My argument is that, if you leave it to the "free market", which is pretty much at the mercy of four companies, they always find a way to work artists and independents out of the royalty pie. I, for one, would like to see there be a manageable compulsory rate so that Internet broadcasters don't have to seek direct licensing arrangements with companies who have historically been bad partners for artists. The government is already involved in this process, and the situation as is will not just destroy Pandora, but has made it impossible for ANY Internet radio company to keep the lights on. Other than "keep the rates as high as possible", there really isn't much of an argument for the rates being what they are. They're not this high for any other type of broadcaster, and what good are they as compulsory rates if you can't build a reasonable broadcasting company under their terms? Fix the rates, let Internet radio become the many billion dollar market it should be, distribute those royalties more effectively, and you have an unprecedented opportunity for independent artists. Again, I understand if others think there is a different path to getting there.
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David, I will try to keep this simple. Our Advisors, hopefully as you were for Groupon, are just very smart people who have been kind enough to answer tough questions for us from time to time because they have tremendous experience at incredible companies. Some of them I have talked to fewer than 10 times, or met only once. I'm embarrassed now that any of these people, who have donated their time to help us bear the trials and tribulations of starting a company, would find their name on this site in such a juvenile discussion. They are the furthest people from having an agenda. If you want to have an honest discussion, here it is. I eat, sleep and breath working for artists, and I advocate for them consistently. My argument for reducing royalties is that it will create a strong internet radio market that will displace FM radio, where artists get paid nothing. That's a good thing, and there are currently dozens of big companies that would be helping that transition along if it wasn't impossible to turn a profit at the current rates. If royalties are manageable, these companies will be able to grow, pay billions of dollars to the industry, and play the music their customers most want. In that environment, I believe independent music will become much more prevalent, in addition to the market expanding. It will be better for consumers and will broaden the tail of the music industry. Pandora and Clear Channel getting bigger is not good for my business. I fight with them for listeners and the last thing I need is them having margins and marketing dollars that I don't have. I questioned publishing this article as a result. Then I decided that if I truly believe supporting a sustainable rate is what's best for independent musicians, sharing that idea with them was more important to me than worrying about a little competition, and I'm glad that Sidewinder and Hypebot could be an outlet for that. If you don't agree with my hypothesis, and think that the rates are fair and equitable, and that keeping them is the best long term strategy, that's your right. But just because we have different ideas about how to get to the best situation for artists doesn't mean I have a hidden agenda, or that you need to be unprofessional or rude in communicating your thoughts. If you care to ask civilized questions, or make civilized statements, I would be interested to hear facts that you think invalidate my opinion. As for your rant below about ClassesUSA, that article is discussing something that happened 2 years ago. I left that company in 2008 and was in a completely different division, and building. Please stop with the paranoia. -Joey
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I apologize for any inference that you or Groupon have acted illegally. I should have refrained from responding to your personal attacks, and I will do so now and moving forward.
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Hey David - there needs to be a law for this because, if there were not some standard terms under which radio companies could play music, the cost and task of going out and securing rights directly for every single track that a station wants to play would be too burdensome for both the stations and the rights holders. So, the government says there should be a universal license they can operate under, and then they have the Copyright Royalty Board set the rate for using the content. The problem is, in this case, the rate has been set in a new way that isn't sustainable.
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