Pandora sets shutdown date for New Zealand service

UPDATE: In an email to subscribers (below), Pandora has confirmed a shutdown date for its Australian and New Zealand services: July 31.

After that date, its streaming music service will no longer be accessible to Aussies or Kiwis via its website or app.

Five staff have been sent packing. The team was headed by ex-Fairfax Media executive Jane Huxley, who presaged Pandora's official announcement by telling her LinkedIn followers "I'm off to walk the plank."

The shutdown is also bad news for Seeby Woodhouse's Voyager, which had the local hosting contract. 

Like most other streaming services, Pandora has been losing money hand over fist (see the gory numbers below) as it battles for a point of difference against services launched by the deep-pockets Apple and Google.

And there was more bad news for the sector earlier today, with US media reporting SoundCloud only had enough cash to remain solvent for 50 days. The company issued a not particularly reassuring rebuttal, saying it had the means to stay in business until the fourth quarter.

The news comes on top of SoundCloud laying off 40% of its 420 staff.

EARLIER/July 9: Only one winner in a streaming music industry where some are on the brink
The news this week that Pandora is pulling out of Australia and New Zealand this week didn't cause much of a ripple.

Failure and financial stress have become almost the norm in the streaming music industry.

I say "almost" because there's one major exception.

Kiwi ex-pat and Apple Music creative director Zane Lowe.

At its June 6 WWDC event, Apple said its Apple Music service now has 27 million paying subscribers — up from 20 million in December and 13 million a little more than one year ago.

The cheapest monthly plan for Apple Music is $US9.99. Times that by 27 million subs and you've got $US270 million a month in Apple Music revenue or  $US3.2 billion per year.

And that's on top of however many songs Apple sells through iTunes.

The difference between Apple Music and the rest is that it doesn't follow the much ballyhooed "premium" model, which analysts have lectured on for the past few years. That is, you offer your basic service free and ad-funded, with an extra-cost option for those who want to escape ads, here slightly better quality music and get the ability to download and store tracks.

Instead, everyone who uses Apple Music has to pay (at least, after a 30-day trial). That's worked for Apple, though of course there's the proviso that it's been able to leverage its huge customer base — and with all services pretty much having the same content (the geo-restrictions and exclusive content that are so pervasive in video are absent from music streaming), scale matters.

Here's a look at the rest of the streaming music landscape.

Spoiler: It's pretty ugly.

Spotify is, in part, a bid by the multinational record labels to win back the revenue lost from the collapse of the CD market, followed by the hollowing out of pay-per-download services by the rise of all-you-can-eat streaming.

Sony, Universal Music, Warner Music and EMI (now part of Universal) are major investors.

Its operation, based in Sweden, has succeeded in terms of raw user numbers.

Spotify is still easily the largest music streaming service. In its financial filing for 2016 (released on June 15, 2017), the company said it had 140 million active users, 50 million of whom are paid (some pay indirectly through a marketing partner, such as Spark in New Zealand, which offers "free" Spotify Premium as one of the perks for customers on pricier plans).

But it's bleeding red ink and it's still unclear how it can make a buck. Of course, the music companies, unlike Apple, don't have rivers of gold flooding in from their other operations. An IPO is one possibility but it keeps being delayed (the latest talk is some time in 2018).

While Spotify's revenue rose 52% to just over €3 billion in 2016, its losses also doubled, to €556.7 million and it's now more than €1 billion in debt.

And despite paying out most of its revenue in royalties, the sheer volume of plays spreads the money thinly, making it unpopular with artists.

As James Blunt tweeted, “I get paid £00.0004499368 per stream. Beers are on me!" (In fact, the singer/songwriter added one too many zeros to the right of the decimal point but it's still a tiny amount.)

Last week, SoundCloud said it would lay off 173 employees — just over 40% of its 420 staff.

It's also closing its San Francisco, New York and London offices to consolidate operations in Berlin.

The company, which hosts podcasts as well as music, claims 173 million active users.

It's privately held and has been coy about detailing how many are paying for its hosting service or the $US9.99/month ad-free version of SoundCloud Go, which provides access to 135 million songs.

But in January it did reveal its annual loss was $US54 million, and that it risked running out of cash by the end of this year – hence this week's cutbacks.

Unlike its rivals, Pandora is publicly listed (on the NYSE, where its shares hit an all-time high of just under $US38 in early 2014).

They closed on Friday at $US8.54.

Pandora has all the same struggling-freemium themes as Spotify, only on around half the scale.

Last year it lost $US343 million on revenue of $1.4 billion. 

In March, it said 4.39 million of its 70 million active users are paid. It predicted 18 million would pay by the end of 2018. But as things stand, the percentage of its users who pay for the service is actually falling.

iHeart Radio
iHeart Radio's parent company, which also owns hundreds of radio stations and an outdoor advertising business in the US, recently warned it might not survive another year.

Its central problem is a private equity-driven leveraged buyout that saw it saddled with a staggering $US20 billion in debt, $US8.3 billion of which falls due next year.

iHeart has 100 million users worldwide for its streaming service but has struggled to monetise them. Its underperformance has contributed to its parent losing around $US1 billion over the past two years.

At this point, it's difficult to see any other result bar the company going into Chapter 11. At that point, the question will be whether a white knight will emerge and, if so, whether its saviour will have any interest in the streaming side of the business.

Tidal has at least had a strategy that has set it apart from the rest, charging more than others but offering "lossless" definition rather than sound quality compromised by compression.

It's also tried the strategy of "windowing" or running content exclusively for a period of time (common in video streaming but absent elsewhere in audio streaming), primarily tracks produced by its main backer — rapper Jay-Z.

US telco Sprint bought a 33% stake earlier this year, helping to keep Tidal in the news. But otherwise, it's struggling to make an impact. It has not released a subscriber number recently but Fortune said a leaked document indicated it was 850,000 (other reports have put it as high as three million).

Music streaming was added to Amazon's "Prime" offering in 2014; Prime being an omnibus service that also offers streaming video and delivery discounts under a $US99/year or $US10.99/month fee (New Zealanders can only access video through Prime).

Amazon doesn't break out a subscriber number for Prime but analysts have estimated it between 60 million and 80 million.

In October 2016, Amazon launched Amazon Music Unlimited, which has more songs, and support for natural language controls through Amazon's Alexa-powered smart speaker range.  Unlimited is available for Prime members for $US7.99/month or $US79/year or $US9.99/month for non-Prime customers); or $US3.99/month on a single Echo, Echo Dot, or Amazon Tap; or the Family Plan for $US14.99/month for Prime and non-Prime customers.

The headache for Spotify and others is that Amazon, like Apple and Google, can rely on huge profits in other areas and can use music as a loss leader.

And speaking of Google, last year it launched its $12.99/month YouTube Red in the US, Australia and New Zealand, which offers a music streaming service as well as other perks including ad-free YouTube.

It's not clear how any of these contenders will make money from streaming music. The only obvious trend is that competition is getting more and more brutal.

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