Music industry’s future – Pandora’s going public and Spotify is raising funds…and why both are bad deals

For those who have missed the recent news, on Februarly 11, Pandora filed their S-1 papers (the documents the government requires you to file prior to going public).  They hope to raise ~$100M.  Here is an article from the NYTimes on their filing.  Rumor has it that Spotify, the big new European offering, is about to raise ~$100M from DST at a $1B valuation!  Of course, you have iTunes and Google music lurking the background plus a slew of competitors from Rdio to old stalwarts like Napster.
There are plenty of reasons to become excited about the music business (everyone likes and listens to music, right??!).  However, there are even more reasons why I would never, ever want to invest in the industry or to own stock in a company trying to build a business on the deadly ashes of the past.
  1. You do not control your own destiny: I would never want to be in a business where someone else controls my destiny.  Music is that industry.  The labels will squeeze you for every penny of profit at one time or another.  Even if you reach a decent deal with them now, say, for 3-5 years, if you are a success in that time frame, they will kick your butt in negotiations in round 2.  They will squeeze ever bit of profit and then, while you are bigger in 3-5 years (revenue-wise), you will be once again at zero profits.  In my view, that is not sustainable.  Pandora’s filing highlights this perfectly.  The company has been in existence since 2000 yet is still not profitable.  I love the company’s service and credit to them and Tim Westergren (founder) for what they have been through and accomplished.  Nevertheless, 11 years later and with significant revenue, they are not profitable and nothing in their future makes me believe they will be.  The labels will squeeze every bit of profit from Pandora and others like it.
  2. Netflix envy:  If you think Pandora or Spotify could be the next Netflix, watch out.  The Netflix model (and their wildly successful stock) may make you salivate.  Dont buy the hype.  I personally predict a sharp drop in their stock price once they announce their new licensing deals with the movie/TV labels.  If I had enough time to focus on investing seriously, I’d be shorting the stock hard.  Starz made a huge mistake a few years ago (when they signed a generous deal with Netflix) but it and it’s co-labels won’t do the same again.  Netflix is either going to pay dearly for that content (i.e. no profits) or will do without the content.  Without the content, people have fewer reasons to buy from Netflix and will look to alternative methods of consuming that content.  Switching costs in Netflix or Spotify’s business are essentially ZERO!  People can and will leave (unless you build a community, which Spotify is trying to do and Netflix has failed to do but even then, this might not save you – see Myspace music).
  3. Market is huge – isn’t that important?.  Investors love big markets and the music industry is certainly that.  However, check out any chart for the industry’s finances (revenue or profit).  Down down down no matter the format.  People don’t want to pay for music anymore.  Sure, a service like Spotify sounds enticing but Napster (the legitimate version), and the millions of other competitors out there (including, even, Pandora) have not exactly taken off in terms of profit or revenue.  Instead, they have gone out of business or slowly eked by.  Sadly, people are used to free music.  A small % of Pandora’s audience purchases their paid version.  From what I have read of Spotify, it is the same in Europe.  Paying customers are small.  Mobile may change that equation but not by much.  How long until we see a Kazaa for mobile?  People love music but paying for it is a challenge (although I would stipulate that is because the prices are out whack with what the market will bear).
  4. Revenue from music purchases.  If you are an investor and believe that revenue from music purchases will enhance your bottom-line, you are making a dangerous assumption.  Assume this money will go away.  Conversion from a free song to owning a song is low to start with and, I believe, will shrink with time.  Owning music is passe (or will be in time as model’s like Spotify take hold and people realize owning music makes no sense…it is always available via the cloud).

Finally, to end where I started – in the music business, you never control your own destiny.  The music labels do and they are old, dinosaur behemoths.  Unless you, as an investor, are into that sort of thing, I would never get into bed with them.  Dinosaurs don’t change.  They go extinct.

 

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Dishnetwork – how NOT to treat customers

As readers of this blog know, I recently moved from DC to San Francisco.  I am not a big TV watcher but in my old apartment, I had roommates who wanted TV.  Hence, I found what I thought was the best option, Dish Network satellite TV.  The price was right.  Of course, as with many digital services, I was required to sign a two year lease.  At my point in life, it is rare to stay somewhere for two years but the contract was fine since Dish offers “free” moves to a new location.  However, since my building in DC only allowed Dish (vs Dish and DirectTV) and you could not have your own satellite dish, prior to agreeing to a contract, I specifically asked whether they would charge me to cancel if I ever moved to a building that did not allow Dish Network.  I was explicitly told that, in that situation, I would be able to cancel free of charge.  I signed up.

What a mistake!  I had two days to find a new apartment when I moved.  I found a great one but, as it turns out, they do not allow Dish Network (only DirectTV).  No satellite dishes allowed.  I just called Dish to cancel the contract given the situation.  Michael, whose operator id is T7X, was mostly professional and straight to the point but not helpful or considerate given the situation.

Here is what I was told:

1. We only allow people out of their accounts if they move somewhere you cannot receive Dish Network.  I told him that made perfect sense.  I cannot receive Dish at my new condo (not allowed).  He said that is not what he meant but only where line of site for a satellite was impossible.  Interesting semantic difference and I feel like I was sold a lot of BS.  Michael reminded me that the FCC requires building to allow you to have access to all providers.  I think he is wrong on this since the board of my new building made the choice (which I bet is a loophole in the law).  Nevertheless, having Dishnetwork as a TV option is NOT possible in my building.

2. Michael, in his infinite wisdom, then said I should have thought about this fact when moving.  Given my two days to find a new place across the country, I said which satellite TV provider was allowed in my building was not at the top of my list of why to choose one building over the other.  However, the insult was helpful (nice training Dish).

3.  Michael explained that the only main option was to cancel the account – $260 cancellation fee!  Of course, another option is to continue to pay for service that I cannot use.  Helpful.  Really helpful.

4. He said I could also transfer the account the another person.  This meant that someone else could continue to use the account so at least it was being used.  People have moved into my old apartment and were using the account but now wanted something new.  This is a less than ideal situation.  Of course, if they want to set up a TV in a different room from how it was originally set up, they would be required to pay $50 fee.  If I moved the account to someone else in a different location, DishNetwork would not require me to pay that fee.  Odd since keeping the account in the same place will actually save Dish money.  Michael was zero help.  Nothing he could do for me on that.

5. Assigning the contract – Michael said that assigning the full contract to the new tenants is not possible despite the fact that legally, I am fairly certain you can assign any contract you want.  “Those are the company rules,” he said.  Interesting in that at one point, he quoted FCC rules (when it helped his point) and then quoted company rules when those made more sense.

Lessons learned: Dishnetwork has ZERO interest in me ever using them again.  That is fine.  It is a perfectly valid business decision albeit one I consider stupid.  As I told Micheal, I do not plan on living in my current building the rest of my life.  Beyond this terrible experience, I actually liked the service and would have bought it again when I had the option.  No more.

I realize I signed a contract and am obligated to it although my situation makes it near impossible to fulfill the terms (i.e. they provide me satellite TV that I can actually watch).  In essence, despite me nearly begging Michael to find some option that would work (or at least make me feel better about the situation), he assured me there was nothing he could do.  Two options: 1. Pay the $260 cancellation fee or 2. beg the new tenants, who I do not know, to join me on the account (since I cannot assign it to them), and then pay $50 to have a Dishnetwork technician come over and turn on an outlet.  Michael, maybe for next time, you could have at least offered that $50 for free (since it would have been free if they had a new address).  Flexibility and a little bit of kindness/understanding would have been appreciated.

UPDATE 4/16/11

The only way, barring legal means, to exit a contract with Dish is to live in a place where you cannot receive service.  Dish sent a technician last week to check on whether I could receive a signal in my new place.  After 5 minutes of looking at his compass and a few other gadgets, the technician said that there was no way I could receive a signal (I face NW into a large building – yea, it’s a wonderful view!).  I spoke to his manager on the phone to confirm.  They said I would be hearing from Dish to cancel my contract.  A week later, I did not hear from them so I called.  Turns out, they have a rule (that no one informed me about beforehand) that requires validation by a second technician.  I guess they don’t trust the first guy who goes – it is just a simple compass reading plus a bit more, right?  Weird that they would want to spend the money and time of their techs to send them twice to my place so that I could exit my contract (13 months remaining and I’m only paying them $16/mo).  Really, Dish, is this smart?

Plus, it is a huge waste of my time since I have to be around and then spend a ton of time with them on the phone arguing about why they are wasting my time and why they never called (since each day I have service when I can’t use it is another day that I must pay for it).  Stupid business and not one I will ever use again.  Looking forward to meeting your next tech tomorrow morning and hearing him say the same thing.

Android Fail – Battery Issues galore

I have a Droid 2 Global.  It is about three months old.  It is supposedly one of the best Android phones on the market.  Verizon rates it at 500 minutes of use (or nearly 8.5 hrs) of active use battery life or 230 hours in standby.  I am not sure where they come up with these numbers.  If you do anything with your phone, the battery will [quickly] fail.  Or, put another way, Android phones do not seem to understand “standby” or, if they do, Verizon’s definition of standby is a far cry from actual normal use.

My first Android phone was the Droid 2 regular.  I returned it.  Why?  Two reasons: 1. The Droid 2 Global launched with a “better” processor and global abilities.  2. The Droid 2 regular’s battery failed almost right away each day.  All day long (i.e. until the battery died), it would heat up to a nearly burning point in my pocket.  It didn’t matter that no major programs were running or that the screen was off – something was working…working very very hard and draining the battery.  Fail.  Return to Verizon.

I am fairly technical.  I enjoy playing around with my phone.  I dig into the settings.  When I first received the Droid 2 Global, it thankfully did not burn a hole in my pocket (although it becomes oddly warm while completely “off” and just sitting in my pocket) but by noon (starting at 6:30am), the battery was at less than 50% with minimal use.  I dug and dug into settings.

Now, I have my phone set to force quit nearly every program.  Nothing except for my work email is supposed to update in the background (unless on WiFi).  Sadly, despite this setting existing, it does not work.  Some programs do update (such as Facebook (not today though since not logged in), BBC, Pulse, and Google Finance).  Of course, other programs that I do want to update do not – Weather and my Google Voicemail are two key ones.

What happens when this occurs – battery fail! I am now prepared for this outcome and assume it will happen.  I bring a charger with me to work and keep it on me nearly all the time.  I have an extra battery.  Today, however, I forgot the charger, which led me to do a forced test.  How long would my battery last now that I have done everything I can possibly imagine to conserve it?

Answer – 8.5 hours after taking it off the charger, I was at 20% remaining charge.  To reach this point, one would assume I actually used my phone.  Sadly, that was not the case.  Here is my usage: about 20 text messages (10 sent, 10 received).  Exactly 15 minutes on the phone (for work, I should add!).  2 NYTimes articles read while waiting for something….nothing more.  Since I knew I would be hurting for power, I did not look at my work or personal email (Gmail) although they were syncing (until I attempted to turn off sync…and my attempt also failed since the button did not work).

I have looked for the battery culprit but to no avail.  None of the diagnostic programs I have run can point it out perfectly.  The best one, Spare Parts, says that 60% of my battery went to “other” programs.  It does not specify.  6% went to the screen. 3% went to the phone.  The processor was barely used for battery drain.

By comparison, my colleague joined me on the train home.  She has a Droid X.  She took it off the charger this morning.  It is her personal phone so she didn’t use it at all during the work day.  She received a few texts and it is syncing with Gmail (but not work email).  She had about 80% of her battery remaining.

What does mean?  Simply put, a few things:

  1. The Droid line of phones (Droid 2 or Droid 2 Global) have some issue.  All you have to do is read the comments on Verizon about the phone to confirm that.
  2. Motorola, Verizon FAIL (I do not specifically think it is an Android issue).
  3. I believe that some software Motorola (or, less likely, Verizon) installed is at fault.  I’ve seriously contemplated rooting my phone.  I am nearly at the last straw.
  4. Companies like Motorola need to focus on smart, efficient software.  Crapware and MotoBlur do exactly zero for me except to dislike your company’s products more (I should add that my battery life did improve once I got rid of MotoBlur).  Most regular users probably do not know you have a special skin.  They DO know, however, that they have a failure of a phone from Motorola.  Is that a worthwhile tradeoff?
  5. Battery life is key.  See Louis Gray’s blog post.
  6. Finally…fail fail fail.  I know these phones are powerful.  I know they can do a huge amount.  I love smartphones.  I hate phones that are warming up in my pocket when supposedly asleep. Fail.

A few side notes:

  1. My iPad last for days of usage.  While it is not using 3G, it is updating my work email account all day long (via WiFi).  Its screen is on, usually, for at least two hours a day (typing emails, on the Internet, listening to music, reading books, etc).  My Motorola Droid 2 – The screen is actually on for less than an hour each day and yet it cannot do 8 full hours.  Moto Fail.  Moto Fail.  Moto Fail.
  2. I beat up on Motorola a lot since I think it is mostly their fault – hardware issues plus all the crap they add on top in an inane attempt to differentiate (although I definitely understand why they want to try).  A know a lot of people on various Android devices from HTC, Samsung and more who have similar issue.  Android definitely needs some work on this front.  Multitasking is a culprit but not the only one (at least make the kill task switch work) and there is no reason why a phone that is supposed to be sleeping is in fact heating up my leg.
  3. My Verizon 3G mobile hotspot also died today.  It was fully charged yesterday and off all day today.  Why – poor design.  The “on/off” button: a) is in a place where it is easily knocked, b) doesn’t actually turn off half the time I attempt to turn it off.  A hotspot (and paying for the service) is no use when it doesn’t work.