Smart Growth at DeliRadio

The secret to a successful music start-up? Lower your costs — and your expectations.

The headquarters of DeliRadio resemble that of any lean start-up company. Tucked in the second-floor suite of a West Berkeley industrial building, it comprises a small cluster of well-ventilated, sparsely furnished rooms, all conspicuously void of cubicles. Three rolling tables form a horseshoe shape by the front window, with roughly a dozen “outreach” workers seated uncomfortably close together. At a glance, the staff consists mostly of attractive young women — and a few male counterparts — all pecking at laptops with the same zeal that a Fifties-era secretary might exhibit whilst pummeling her typewriter. Their job, apparently, isn’t much different from that of a secretary, either, though it’s described in more sophisticated patois.

“They’re instigating conversations with bands,” marketing vice president Matthew “Smitty” Smith explained, beaming at the group — none of whose members looked up from their computer screens. Smith said that most of those conversations happen via e-mail, though sometimes the DeliRadio staff will court a band over Twitter or Facebook. Often they’ll scour music festival websites, check the bookings at local venues, or cull a band’s profile from somewhere in the depths of Google. They log all correspondences for fear of spamming anyone too aggressively. They’re tactful but extremely comprehensive.

The goal is to create a database of bands, whose songs and upcoming shows can be harnessed to create a personalized radio service. Users can generate stations based on a location, artist, date, or venue — which means you could conceivably launch a Latin-jazz station that only includes artists who are touring within fifteen miles of Berkeley sometime in the next three weeks. Right now it’s offering information that’s likely already available on sites like Bandcamp, but it does have the potential to be a useful aggregator.

And, thus far, they’ve snagged more than 4,000 musicians — 4,147 at the time of our interview, according to a computer monitor that sits to the right of the outreach table and documents the group’s progress. Each time a new band joined, its name and location appeared on the screen. Last Thursday, the latest additions hailed from surprisingly far-flung terrain: Shulman’s Klezmer Band, from London; Monokino, from Amsterdam; Sara Valenzuela, of Mexico City. Since its genesis in September, DeliRadio has also garnered a few big names, including Girl Talk, Steve Winwood, and They Might Be Giants. But most of the clientele are local, and many are musicians you’ve probably never heard of.

That’s exactly what founder Wayne Skeen envisioned when he conceived the idea two years ago. He says he specifically wanted to create technology that operates on a micro level, and appeals to the aspiring musicians who would normally be playing “for garage walls.”

Skeen is the clean-cut complement to Smith’s laid-back, pony-tailed persona. The former clocked fifteen years in finance before founding the small record label Ninth Street Opus (which shares office space with DeliRadio). The latter spent most of his adult life as a touring musician. They teamed up to launch DeliRadio eight months ago, after securing a generous pot of seed money from an unnamed financier. The idea, Skeen said, was to create a band network and personalized radio service that also serves as a promotional arm for live shows. DeliRadio also hosts live events and battles of the bands, such as the one at Ex’pression College for Digital Arts this weekend, which, full disclosure, is co-sponsored by the Express.

Skeen offered a tutorial of the service on his iPhone. “Say I wanted to create a station based on shows happening this week in Oakland,” he said, opening the DeliRadio app and clicking the “location” setting. The first band to pop up was local hip-hop duo Zion-I, which was slated to play that Saturday at St. Mary’s College. Skeen thumbed through the band photos on Zion-I’s profile, opened the group’s music player, and hit the “share” button. Within moments, a text message alert bleated on Smith’s cell phone. “DeliRadio,” it said. “Zion I ‘Hit ‘Em Up,’ Featuring Mistah FAB.'” Skeen nodded proudly, marveling at the efficiency of his own system. This was 21st-century technology at work.

As of now, DeliRadio is unprofitable and has no revenue streams whatsoever. Skeen and Smith say they can coast along on seed money for a while, which gives them the luxury of being ambitious and quixotic. They have a few options for generating revenue that don’t involve direct advertising: ticketing services, premium subscriptions, and serving as an ancillary marketer for venues. For now, that’s all speculative, says Skeen, who looked noticeably uncomfortable when buttonholed about their potential revenue streams. He’s certainly not alone.

As a general rule, music start-ups haven’t been a great cash boon. Oakland company Pandora, which is the gold standard for Internet and mobile radio, has stayed in the red since its founding in 2000. The company went public last year, and in that time its stocks dropped nearly a quarter, though its revenues continue to rise. (Some analysts predict that Pandora’s targeted ad model will ultimately be its saving grace, since it could more than compensate for what the company loses in royalty payments.) Similarly, Spotify, which is funded by paid subscribers, ads, and retailer partners, has never achieved economic equilibrium, largely because of what analysts call an “expectation gap” — according to Digital Music News, it had projected 50 million users within the first year of its US launch, but after nine months, the Swedish company can only boast 3 million active US users.

In short, music start-ups may provide a wonderfully useful service, but they also have an incredibly dicey business model. So far, no one has quite reached that Holy Grail of earning enough revenue to outweigh the cost of royalties. And DeliRadio, which doesn’t have ads at all, isn’t likely to revolutionize the market — it’s perhaps telling that the words “revenue” and “profit” don’t appear anywhere in Skeen’s elevator pitch. He vehemently eschews advertising, and clings to the hope that he’ll never have to go that route.

That said, the company does have an edge over some of its peers: It doesn’t pay royalties. Not a cent. All the bands on DeliRadio are willing suppliers, in the sense that they’ve created their own profiles (or authorized the company to make one), uploaded their own music to the site, and granted DeliRadio permission to stream it. If all goes according to plan, DeliRadio will never be burdened with the uneven economic model that has plagued Spotify, wherein four all-powerful record labels got to set the price for all of the company’s content. If DeliRadio manages to grow at a fast clip, while eliminating the single biggest operational cost of running many music start-ups, it may eventually turn a profit, ad-free.

Smith sees plenty of potential revenue streams in the long-run, owing to DeliRadio’s emphasis on show promotion. He’s fond of saying that if an artist shills a track to Spotify, it has to stream about 40,000 times before the artist sees $15 in returns. “That’s the price of one show ticket,” Smith said. From a marketing perspective, then, bands have a much greater incentive to join DeliRadio, where they have the opportunity to directly promote shows to fans. Even if DeliRadio was to eventually charge a service fee, the economics could still be mutually advantageous. Smith is convinced that the company’s future lies in the fact that its founders understand how dollars and cents are made in the music business.

“I’ve been a musician for fifteen years,” he said. “I’ve made eight albums with four bands.” No matter how many CDs each band sold, he said, “we never recouped the cost of performing.” Smith’s last band, a roots-rock outfit called The Real Nasty, ultimately decided it was more cost-effective to give CDs away for free, and count it as a promotional expense. Selling records just isn’t a viable source of income anymore — live gigs have long been the only way for working musicians to survive.

Thus far, DeliRadio hasn’t received any cease-and-desist letters, although a couple bands have removed their own content at the behest of a manager or record label. Both Skeen and Smith adamantly oppose piracy, and say their goal is to only stream content that’s approved by the content-holders. That might inhibit them from streaming pop songs by Beyoncé and Rihanna, but it may help ensure success on a micro level. The site has no entry barriers, which means that any band can join. The take-home, for DeliRadio, is a massive amount of free content. Even absent donor largesse, it might be easy for the company to meet its bottom line.

If there is one, that is. Skeen, who is coy about financing, says that maybe the secret to being a successful music start-up is to lower your expectations. “It might be a pot of gold,” he mused, “or it could just be a cool little niche.” In any case, the business plan for right now is to grow slowly and keep costs under control. At the rate it’s going, DeliRadio is just a few weeks shy of 5,000 bands.


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