Pandora sets shutdown date for New Zealand service

Pandora's erstwhile Australia-New Zealand managing director Jane Huxley: "I'm off to walk to the plank"

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.

Apple
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
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.)

SoundCloud
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.

Pandora
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
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).

Amazon
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.

Google
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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21 Comments & Questions

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Again Amazon drives another segment to the brink .. soon govts must realise profit is not the devil .. it makes economies work.. predatory strategies like what Amazon uses have to be outlawed.. or all we will end up with is amazon who puts very little back into any economy..

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Why are predatory pricing strategies an issue? The consumers (who, after all are the whole point of having an economy) get to get the things that they want for cheaper.

At some point Amazon could, potentially, have a monopoly (although when they are up against Apple and Google this isn't all that likely); but even then the monopoly would be contestable - if Amazon tried to exploit it then other providers would jump in.

Yes, the producers and middle-men feel some pain and may go out of business - but who cares? After all we should "treat all economic questions from the viewpoint of the consumer, for the interests of the consumer are the interests of the human race".

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because the artists who actually produce the music gets nothing.

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So this is why there are no more adds on my free Pandora account. I wounder how much longer until the music stops working though.

On a more serious note, Amazon, Apple, and Google are big enough to drive hard bargins with the music companies. And good on them. As the music industry refused to offer paid for music downloads at reasonable prices, and without silly restrictions. So it is their own fault that they allowed themselves to be disrupted twice.

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You misunderstand who is being marginalised here. It's not the major labels, it's the people who create the music and try to make some sort of living from it. The songwriters, the indie bands, the majority of music makers who aren't signed to the behemoths. That's about 90% of NZ artists.

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What about NZ's very own Baboom?

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I think you're missing one MAJOR point with Spotify, their focus is and has only been on growth, not profitability... They are flush with cash ($1b+) and moving rapidly to critical mass and have already reduce their contract % to the major labels. It is only a matter of time before they start to diversify their revenue streams and disrupt the value chain with 000's of artists that are currently unsigned. That's not even looking at how they could leverage the gold mine of streaming / audience data they sit on..

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Spotify raised $US1 billion in debt financing in March, at terms that could see it paying up to 10% interest.

But even in a parallel universe where it has raised $US1 billion in equity, that would be chump change when you're in a war of attrition with opponents including Apple (cash: $US256.8 billion).

Spotify was the fastest growing service, but now that crown has been handed to Apple Music.

The broader problem is that, unlike in streaming video, no service has any unique content. No one's got any unique features. And there aren't the geographic restrictions on content that are so pervasive in video. So I'm not sure how Spotify can raise prices to reach profitability (and in terms of cutting record companies' margin, remember the major record companies own stakes in Spotify).

I guess there is a treasure trove of data, but how do you exploit it when everyone's become habitualised to paying one low monthly fee (or nothing) for all the music they can stream?

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What source are you referring to that Apple is now growing faster than Spotify? I would love to see Apple's numbers without Ppl on the free trial period..

Interesting that you bring up Video, as the ex-Netflix CFO is now their #2 and the current Netflix chief content office has also recently joined their board, so should be a interesting space to see where they evolve to here.

Seperately, I would imagine a easy win is in the audio books, podcasts, educational/tutorials sectors that don't have the margin pressures that the music industry brings.

Re: the major labels, from what I've read their stakes in Spotify are <5%, so should have little impact on their strategic direction but a lot riding on their success. Apple and Google in particular (via YouTube) have not made life easy for the labels or artists..

I would think one data play is with the artist management teams, to create a relationship where they see there success being driven from the insights and tools that Spotify can exclusively provide i.e. planning tours, testing singles/tracks, facilitating ticket sales and merch etc. (FB, Google, Amazon don't like to share their data (for free anyway)).

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Source is Apple's WWDC event (bearing in mind it's a public company with a publicly audited account). See figures in article above. Apple stated it was a paid subscriber number.

The combined record company state is around 20%.

Good luck to Spotify moving into areas like podcasts and audio books, but others including Apple and Amazon are already there.

I'd like to see Spotify succeed, for the sake of competition, but again I just don't see it having any point of difference or the ability to win the war if it becomes about scale.

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Has'nt Zane Lowe done well for himself, good on ya!

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As an Apple user, I wonder if I should start migrating my Spotify playlist to Apple Music??? Obviously Spotify isn't going to go away immediately, but it reduces the pain when it does...

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Spotify USP's are not overwhelming but there are some:

- The product / user experience - Excellent cross-platform product compared to Apple's travesty of UI design that is itunes/music (sorry fanboys!).
- Years of experience with data intelligence & analytics - I've been using it for years and the Spotify suggested playlists etc are excellent and getting better. This capability is hard to build. Only Amazon and Google can challenge it but Prime Music feels like the bargain CD basket down at your local Warehouse compared to Spotify (though it probably shares similar music libraries).
- Spotify can layer on all sorts of value add services for artists, labels and listeners. They are solely focused on music.
- Spotify is owned by the record labels - They can start to leverage exclusivity in a final showdown with Apple.

My money is on Spotify to win big with Amazon picking up the masses with their bundled Prime offerings and cute Echo speaker systems.

Google Play lacks credibility but you get the feeling that as Google/Amazon move more into hardware (Home, Pixel etc) then Music will become even more strategically important). Amazon and Google et al will battle to take over all of our lives but Spotify can focus on Music and if they keep winning customers as they are now, they will be a must have app / experience on any hardware (note Spotify bundle deals with Spark etc - can't see any others winning these deals at the moment?)

The one certainty I can see, if we do get into a duopoly expect the price of music to start rising once the transition to streaming is at 90% complete, the music industry won't be happy 'til it gets back to the eye-gouging glory days of people rebuying their record collection on overpriced CDs.

Then it'll all get disrupted again and Artists will take full control!

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Will iHeartRadio and Rova lose their market share on the back of this?

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A March story suggested that iTunes numbers were double the Apple Music revenues fairly recently. It also has some other calculations that support the story above. It is clear that iTunes has been declining since 2014 but the launch and very fast growth of Apple Music is a case of constructive business cannibalism.

Yes they are losing some iTunes music digital sales but more than making up the volume by Apple Music. The only thing is "Apple Music and iTunes maintain a low gross margin at about 15%" - actually from the source. for the other article. See

http://musically.com/2017/03/16/apple-music-estimated-10-apples-services...

http://appleinsider.com/articles/17/03/15/services-growth-on-track-to-de...

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It's a fascinating thing to watch play our, the whole area of platforms, disintermediation and content producers.

Seems to me that the writing is on the wall for the likes of Sky TV and many other cable companies as intermediaries between content producers and consumers - at least in as much as the ability to bundle together a bunch of unwanted stuff with wanted stuff, at a high price. Most of these seem to be fighting the battle to prolong their status quo (or lock it in via alliances, e.g. with Vodafone)...but you wonder, is the board reading the writing on the wall and planning something else for the future? No one is really interested in buying Sky TV's rubbishy content, for example, but do find their creation of sports coverage valuable.

Likewise interesting are Spotify, YouTube, Apple and Google Music etc. and the way they're replacing radio, as well as the platform and artist revenue models. It's never been easier for an artist to distribute their art...but it's the ability of the markets to match consumers and artists that is of value (as well as, in some cases, the community around this), and how this can generate sufficient revenue for the parties involved.

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I still prefer to buy my music by the track or album from bandcamp or itunes. I'm vaguely interested in Apple Music but I've heard quite a few usability horror stories and I'm not sure if it is safe to use yet. Add that to icloud buggy stories and my 50GB collections seems safer on my computer. I have one thumb drive that is 64GB and arecently added a 128GB SD card as well.

Generally I wait for version 3 of anything by Apple before I buy but a bit hard to track the "versions" on Apple Music.

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Pandora's free service is so good that I've never seen a reason to upgrade to the paid service.

(I've been using Pandora since before it was available in NZ).

When I do upgrade my stereo system, I'll be streaming Tidal lossless or spinning vinyl. I see no reason to stream mp3 or CD quality in the house.

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Time for the vinyl revival to go from 16 to 78 rpm.

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There are plenty of geographical restrictions on Spotify content. If you go into settings and turn on "Show unavailable songs in playlists" and then go looking in some big playlists, you'll find a ton of songs that aren't available here. When I've asked Spotify support why they're unavailable they told me it was due to different contracts in different regions. It seems to happen more often with non-mainstream music and older albums.

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