The Slacker Dilemma

Start-up founders by nature are risk takers, willing to face insurmountable odds in their attempt to disrupt the old guard.

But no company faces more adversity than Slacker Inc., an Austin, Texas-based personal music start-up that launched late Wednesday. It is hard to shake your head at the odds against this company. Good luck to them, because they’ll need it.

The company’s three co-founders have a digital music pedigree that is unrivaled – Dennis Mudd, who started Musicmatch, a music service that was acquired by Yahoo, Jim Cady (from Rio) and Jonathan Sasse (President of iRiver America).

The company describes its service as “personal radio” which allows customers to listen to music anywhere, as long as there is a browser. The company will sell portable players that are Wi-Fi enabled and have satellite radio connectivity built into the devices in the second quarter of 2007. The devices will cost $150-to-$300 depending on the storage capacity.

The service is free if you are willing to put up with advertisements and a pause after six tracks. Otherwise you might have to cough up $7.50 a month for the premium offering. Slacker has received a lot of coverage from various outlets ahead of its official launch, a move that is reminiscent of Sasse’s marketing attempts to position iRiver in the U.S. market.

To recap: Slacker is competing with satellite radio companies, personalized music subscription services such as Napster, Urge, Real Networks and if that wasn’t enough device makers such as Creative, SanDisk and the big bad Microsoft. Then there are upstarts like Pandora and And that list doesn’t include the happy shiny iPod and whatever Steve Jobs is cooking up in his basement these days.

The 2007 Florida Marlins have a better shot at the World Series than Slacker does against the rest of the music league. And now let’s talk about the practical challenges:

1. Sirius and XM spent billions and still had to merge to build a meaningful business out of satellite radio. Their subscription numbers – 14 million after years of sustained losses.
2. Real, Napster, Urge and everyone else peddling subscription services have yet to cross the 10 million subscriber threshold, and profits are something those companies don’t talk about.
3. People equate iPod with digital music, so selling hardware – an expensive proposition anyway – is not possibly the wisest move.
4. The Web music royalty fiasco is only just getting started.

We understand that Slacker is a wee bit of everything and still trying to be different. As one smart man just emailed and said, “Slacker is trying to be transistor radio of today, but to do that their price point will need to come way down.” What he didn’t say, where would the money come from? Ads – if yes, then they better do audio and display ads; otherwise they will continue to lose money.

A former digital music industry source of ours who has washed his hands of the music mess says while Dennis is the man, “No amount of money would put me back in the music licensing business.” Another digital music business source talking on condition of anonymity says that the cost of goods (i.e. cutting deals with record labels) can be seriously injurious to a company’s profitability.

Don’t blame me for being a tad pessimistic about the odds of this company – but then fortune favors the brave. Especially if they have tens of millions of dollars to spend on their dreams – even if the dollars happen to be other people’s money!