Broadcast radio rules by a wide margin with Google's (GOOG) YouTube a prime driver of online activity.
While the survey likely has flaws and I don't agree with the author's decidedly negative findings/assumptions about subscription model Internet radio, I do concur that consumers are still feeling out how to best navigate this relatively new streaming-dominated landscape.
And, make no mistake, just as streaming will soon dominate video consumption (if it doesn't already in some areas), it will rule music listening. For whatever reason, the transition from more traditional methods of watching television and the Netflix (NFLX) red envelope appears easier to swallow than the shift from what's playing in your iTunes (or similar) collection, on broadcast radio and the only Web service to achieve significant scale, Pandora (P) Internet radio.
It's a fascinating landscape to observe. I love speculating about what's happening and visioning what might be, but here I want to address practical considerations that can help advance the learning curve. At the same time, the possibilities inherent in Internet radio (and its offshoots) as a consumer space help inform the investment case for companies in and around the space.
I reckon most music listeners probably do not use even a fraction of all that exists to their advantage. Granted, there's so much out there it can be intimidating. There's no end to the potential systems and combinations that can take your music listening -- casual, hardcore or somewhere in between -- to not only the next level, but its greatest potential.
The Experience of Listening to and Discovering Music
My two fondest memories of listening to music as a child involve my Uncle Mike.
We spent many weekend nights in my grandparents' basement listening to vinyl records. My uncle kept his collection in several milk crates. We would put something on, listen, talk about it and move on to something else.
Often, these listening sessions would morph into drives around Niagara Falls, New York, listening to what was 103.3 WPHD. My uncle and I drove around, with no particular place to go, until 'PHD played a "superset" (on their "superset weekend") by The Police. Sometimes we would drive past midnight (a treat for a kid my age) waiting on three in a row from Sting, Stewart Copeland and Andy Summers.
Great times I wouldn't trade for anything. You just can't replace the lasting social impact of that interaction. However, I can't help but think how much richer these experiences with Uncle Mike would have been if we had today's technology at our disposal.
Broadly speaking, there might not be a better investment case for Apple and other technology- and data-driven companies such as Pandora than their abilities to improve the ways we live life and relate to one another. That's one reason why I get so passionate when I challenge musicians who squabble over a fraction of a cent vis-a-vis royalties.
They don't seem to recognize that the power of what they do extends beyond a fixed payment per spin or play arrangement. Once musicians embrace what technology, what data can do for them, they're off to the races, free from the sucking action of petty squabbles and their industry's limitations.
Something similar stands for the music listener, who embraces and aims to understand the technological resources at his/her disposal. It began with iTunes and the iPod. And it has exploded exponentially from there.
The Complementary Nature of Internet Radio
If I have hammered home a theme over the last year, it's that there's room for multiple, successful Internet radio platforms and applications. One often makes the next one better.
As an example, here's a routine I employed several times over the holiday break. Granted, I'm some flavor of music freak (only getting "worse" by the day), but the details of how I use Internet radio can easily inform your experience.
Oddly, the hardcopy edition of a music magazine triggered this particular phase of music listening and discovery.
I subscribe to Music Connection. Excellent publication if you want to keep up on bands you follow and learn about quite a few more you most likely never heard of.
I tore a couple pages out of Music Connection's year-end edition: 2013's HOT 100 Live Unsigned Artists & Bands and that month's album reviews. What an incredible source of music discovery.
If they're not already, Pandora's curation team should be doing this every month.
So from the unsigned list, I randomly pull a name, fire up Rdio (a primarily on-demand subscription service) and see if the artist or band is part of the catalog. (If it isn't, I check Spotify, my second in line on-demand platform). If Rdio has the artist, I sample a couple tunes. If I like what I hear, I sample a few more. If I'm still interested I exercise one or more other options:
- Add some of the artist's or band's stuff to my Rdio collection.
- Add some of the artist's or band's stuff to a Rdio playlist.
- Head to Pandora and fire up a station using the artist's or band's name.
So Music Connection introduces me to new music, making me feel more hipster cool than the coolest hipster. I'm not merely listening indie. I'm listening to unsigned bands. But they're good. Damn good! Even if each one doesn't float my subjective boat.
Rdio exposes me to entire discographies.
Then, at Pandora, when I create an artist station I get some of that artist's stuff, but also other tracks -- some familiar, some not at all -- the Music Genome Project identifies as musically relevant to the seed that started the station and the subsequent tunes.
I took a similar trajectory using Music Connection's album reviews, which only look at acts signed by major or independent labels.
Music Connection reviewed The Fratellis latest effort, "We Need Medicine." Here's a band I had heard of before, but, for some reason, never listened to. So I go on the Rdio to Pandora trajectory. In the process I, shall we say, rediscover The Fratellis and sample several other bands in the same musicological realm.
If you want to get really ambitious, you can round out the process by tapping the Soundwave app. While it doesn't keep track of Pandora listening yet, Soundwave tallies all of your Rdio, Spotify and iTunes (collection) plays. More importantly, you're able to see what other Soundwave users are listening to, opening yourself up to even more discovery.
Internet radio -- it's a sector marked by endless possibilities for everybody. From consumers to companies in the space to investors. I bookend companies with consumers and investors on purpose.
If you're going to take a Peter Lynch invest in what you know approach in any sector, spaces that touch music might be the way to go.
You can diversify along the lines of company size as well as level of exposure to the space (AAPL, GOOG as larger plays with reliable cores outside of music; P as a smaller, pure-play and more speculative bet).
But, most importantly, you're buying names involved in critical areas of innovation. Let's face it -- if you're investing in companies dabbling seriously in mobile advertising, streaming radio and the broader, rapidly changing music industry, you're investing in companies that are helping move along the species.
--Written by Rocco Pendola in Santa Monica, Calif.