Seeing the South Glastonbury headquarters from which Connecticut native and entrepreneur Tom Brophy intends to wage a market share assault on streaming music giants like Pandora, one might be skeptical about CÜR Media’s chances.
“Yes, we are in a basement,” wrote Brophy in an email giving directions to the fledgling media company’s home base. The office is actually located under a Subway restaurant, adorned with comfortable furniture, wood floors, a stone fireplace, flatscreen television and plenty of natural light for CÜR’s growing team of programmers and web designers.
Such is the life of a startup, but in many ways it’s the perfect spot for CÜR, which took its streaming music website and mobile apps offline in November to enter a stealth mode of product development and fundraising. Since then, the company has doubled in size to 16 employees, the bulk of them working in Glastonbury.
The office space — and Brophy’s sense of humor about it — belies his company’s recent momentum and ambition.
CÜR, which until recently went by the name Raditaz, raised more than $9 million in an alternative public offering in January. That makes it one of very few publicly traded streaming music providers, the largest being Pandora, which had $427 million in revenue last year.
The $9 million represent a good chunk of what CÜR will need to introduce a completely revamped web and mobile platform later this year to try to poach listeners and advertisers from a crowded field of online music streaming competitors.
But money isn’t the only thing CÜR has going for it. Brophy — a seasoned entrepreneur who cut his teeth in the dot-com bubble years — has stacked his team with music industry heavyweights.
John A. Lack, founder and first chief operating officer of MTV, is board chairman. And Robert Jamieson, former CEO of BMG North America and RCA Music Group, is vice chairman. Jamieson, a Connecticut resident, is credited with a major turnaround of RCA Records in the late 1990s.
Both men are deeply connected in the entertainment industry, which Brophy said will be crucial in the months ahead.
Brophy has held executive roles at several public companies. He was chief financial officer with New York’s Promotions.com when it went public in 1999. He later joined Interactive Search Holdings, which Ask Jeeves acquired in 2004 for $343 million.
Finding an entry point
CÜR hopes its platform can find a sweet spot in an industry that has new competitors popping up regularly.
The largest players include Pandora, iHeartRadio, iTunes Radio and Spotify. Others, such as Rhapsody and Slacker, nip at their heels in the war for U.S. market share, according to Edison Research.
Though each is unique, online music streamers have a relatively simple business model: They pay music owners for the rights to host songs on their respective platforms, and sell advertising and subscriptions, or both, to bring in revenue.
Raditaz had become fairly popular before Brophy and his team took it off line last year. The platform had approximately 25 million songs — more than the biggest companies have today, though Spotify is approaching that number globally. Raditaz also built up approximately 175,000 users a month.
That was a good start, but still far fewer than the 77 million users Pandora reported in October. That same month, Spotify had more than 20 million listeners, according to media tracker comScore.
To get anywhere near that kind of traffic, Brophy and his team of advisors say they needed to revamp their platform, and raise money to do it.
“Even though we had more bells and whistles [than Pandora], it’s tough to follow a big competitor like that,” Brophy said.
Brophy and his team saw the alternative public offering — which is a combination of a reverse merger with a publicly traded shell company paired with a simultaneous fund raise — as the quickest way to push their product to market.
The $9 million will help, although the company hopes to raise as much as $30 million more, much of it for marketing, before launching its product later this year.
Raditaz was a free service that was similar to Pandora in that it allowed limited song selection and used an algorithm that chooses the next track based on listener’s preferences. It also had its unique features, such as linking playlists to location so users could see what people were listening to hundreds of miles away, and an auto-play function that would queue up playlists based on the user’s present location, like at the gym or in the car.
Jamieson said in a phone interview that he saw the Raditaz platform as a good start, but something that needed more development.
“In and of itself, it didn’t really have a model that was sustainable over a long period of time,” Jamieson said. “Where do you generate the revenue?”
Seeking revenue
Brophy and his team hope they have the answer. The CÜR platform, which the company intends to launch late this year, will be a subscription model, costing less than $10 a month, Brophy said.
It will have display advertising, but no audio ads that interrupt the music stream, such as those found on the free versions of Pandora and Spotify. It will be available on the web, Android and Apple-based phones, and tablets. Licensing negotiations are still pending, but Brophy thinks CÜR will have more than 10 million songs.
Though much of what they are developing has been kept secret, Brophy said CÜR will be a hybrid of Pandora and Spotify — blending music streams that pick the next song based on listener’s preferences with some ability to skip tracks and play others on demand. It will also incorporate what Brophy called “an Instagram-like social toolset.” “If we have the product that takes the best of Pandora and Spotify and adds all these social elements to it for a reasonable price, we think it’s going to be a big success,” he said.
Industry yearns for mutually beneficial model
A key issue for streaming music providers is licensing, which cost Pandora nearly $259 million last year, according to financial filings. Pandora lost $38 million in 2013 and expects losses to continue as it invests in building up its revenue base.
The licensing gatekeepers are the record labels that own the rights to the songs, and the Copyright Royalty Board, a nonprofit housed with the U.S. Library of Congress.
The labels, according to Jamieson, are concerned about offsetting continued losses in CD sales with streaming revenue.
CD sales continued their plunge in 2013, falling more than 14 percent, and for the first time, digital downloads also fell year over year, according to Nielsen SoundScan.
Jamieson became chairman of BMG North America around the same time BMG’s parent company worked out a deal to buy music-streaming pioneer Napster in 2002. But Napster had been under legal attack for some time by record labels and musicians, and the sale was blocked by a judge. Napster’s assets were liquidated, and after changing ownership a number of times, the company is now part of Rhapsody. “We had the vision then for an industry platform co-owned by whole industry,” Jamieson said. “Had the industry worked together there may be a different discussion we might be having today.”
The recording industry, he said, has become much more receptive to the streaming model since the Napster legal tensions.
Jamieson said he sees his involvement with CÜR as a second try at developing a music sharing model that works for artists, rights holder and listeners alike.
“Once the genie was out of the bottle, there was no question we were never going to put it back in the bottle,” he said. “It’s hard to compete with free.”
