When Scott Riggs took his first commercial radio DJ job in 1995, he was handed a list of songs and told never to veer from it.
“It was a shock,” said Riggs, who soon learned that DJs rarely get to choose the music at broadcast stations, where playlists are dictated by top 40 hits. “I wanted to be the guy who played a new song that blew someone’s mind and turned them on to great music.”
Today Riggs, 41, gets to do just that. As director of music programming at the San Diego online music service Slacker Inc., Riggs oversees about 70 DJs who select most of the songs played on the company’s 150 stations, including genres as varied as trance, hip-hop, gospel and swing.
Slacker’s handcrafted approach sets it apart not just from broadcast radio but also some of its online rivals, including Pandora Media Inc., which relies on an algorithm to determine what song to play next.
Slacker and Pandora are among a cluster of digital services vying for a slice of the $13-billion U.S. radio advertising market now dominated by traditional broadcasters such as Clear Channel Communications Inc. Slacker is also going after a burgeoning business in subscription music streaming, which lets paying users skip commercials and pick the exact songs they want to hear.
Although the digital music market is still in its infancy, Slacker has been around since 2006. Its founders initially had envisioned a portable music service that used satellite bandwidth, but they abandoned the idea in favor of using standard Internet connections to deliver music. Slacker launched in 2007 as a free Web-based service, supported by ads.
At the end of 2007, Slacker introduced a premium ad-free service for $3.99 a month that enabled subscribers to skip songs and listen to music even when there was no Internet connection. That year it also started to sell a portable player that allowed users to listen to the service on the go, followed in 2009 by a music service on BlackBerrys and other smartphones such as Apple Inc.'s iPhone. And in May it launched an on-demand service that lets users pick the exact songs they want to hear for $9.99 a month.
Subscription music services like Slacker have been around nearly a decade, beginning with Rhapsody in 2001. But until recently most have struggled to make money, largely because audiences have been reluctant to pay for music and because the services themselves were initially confusing to use.
“Music is something that most people want, but in general they don’t like to pay for it,” said Mark Leschly, managing partner of Rho Capital Partners, whose firm has invested in Slacker since 2008. “It’s been a difficult business model for many years.”
As a privately held company, Slacker does not disclose its financial data. The company has 30 million registered users, 6 million of whom listen at least once a month, as well as 400,000 paying subscribers.
“The only reason we’re not net profitable today is because of our marketing expenses,” said Jonathan Sasse, Slacker’s senior vice president of marketing.
Although Slacker has struggled over the years to find the right business model, it has not deviated from its DJ-centric approach, believing that the way to people’s ears — and wallets — is to offer music curated by experts in dozens of genres and sub-genres.
Riggs is at the heart of Slacker’s efforts, overseeing a group of contract DJs who build their stations’ playlists from scratch and continually fine-tune them. On a recent Tuesday morning, Riggs took a break from his management duties to engage in his favorite task — finding new songs for his stations. He surfed through a few music blogs and played snippets of tracks until something caught his ear — a new release from War on Drugs, an up-and-coming band he knows and likes. With a few clicks, he added the track to his playlist.
Riggs then checked how his listeners were responding to his choices. Unlike broadcast radio, Slacker’s software can detect every time a user switches to a different station or skips a song. Slacker also lets users ban songs they don’t want to hear again or “heart” songs they like.
Riggs noticed that Adele, whose blues album topped the charts for much of this year, was seeing a high number of skips, suggesting that listeners were fatigued with her songs. At the same time, she also had a high “heart” rate. Riggs decided to play her songs less frequently.
“Our stations are constantly modified,” Riggs said as he fussed over his playlists. “For us, it’s about making the best station in that genre. It’s more art than science.”
Slacker’s software takes each user’s preferences into account alongside the DJs’ playlists to weigh which songs to serve up.
Slacker’s subscription services give users even more control. Listeners can skip as many songs as they like, whereas the free service allows only six skips an hour.
“There are times when I only want to hear Steely Dan and nothing else,” said Ted Cohen, president of TAG Strategic, a digital music consulting firm in Hollywood. “And there are times when I want to sit back and be taken on a journey by a trusted DJ. Slacker lets me have both.”
Jim Cady, Slacker’s chief executive, estimated that there were just 4 million paying subscribers to digital music services in the U.S. before the July debut of Spotify, a Swedish service with more than 1 million paying subscribers throughout Europe. Spotify’s splashy U.S. arrival generated buzz and caused many consumers to try out Spotify as well as other digital music services, including Slacker.
Another catalyst for the sector is the explosion of smartphones such as iPhones and Android devices that enable people to tap easily into music services. In addition, Slacker has deals with AT&T, T-Mobile and Verizon to have its service preloaded on many smartphones. Customers who opt to subscribe can do so with just a few clicks and are charged via their cellphone bills without having to pull out their credit cards.
Slacker is also working to get its service into cars and home audio systems — both places that are becoming increasingly connected to the Internet.
“Overwhelmingly, the differentiation is in how these services are distributed,” said Eric Garland, chief executive of BigChampagne, an online media measurement and research company. “When a potential customer reaches for that button, you want to be the service that’s right there.”
Whether they pony up for the subscription, however, could depend on Riggs and his crew of DJs.
“If we can provide value by turning people on to great new music,” Cady said, “we think there’s a good chance they’ll pay for it.”