The ever-shifting business model of Internet radio is seeing yet another shift as MOG, previously a subscription only model shifts to offering a free tier. The move, what I term as a hybrid music model, has MOG joining business models like Pandora, Slacker, Spotify, and to a certain extent Sirius XM.
MOG was a subscription only service that allowed users to stream whatever they want, and download whatever they want for about $10 per month. The service, which has won awards for its platform and user interface, is a great value for those that love to download songs and have instant access to a particular song with the ease of curated stations.
The free tier is something that attracts consumers to a service in the first place. Once on board, services like MOG, Pandora, Slacker, Spotify, and Sirius XM try to upgrade that person to a paying tier. The incentives for upgrades vary. With Sirius XM, you simply lose the service altogether if you do not upgrade after a promotional trial. With Slacker and Pandora the hook is commercial free entertainment as well as features like unlimited song skips. Spotify's tiered service in Europe has 10 million users of which 1 million are paying subscribers. Perhaps the biggest hybrid model out there is Clear Channels iHeartRadio. The service is free, but coupled with Clear Channels traditional terrestrial radio model. Thus their ability to offer over 750 stations along with customized channels carries mass appeal.
MOG CEO David Hyman feels that the U.S. market is ready for cloud-based services stating, "It's a massive market, and there's going to be more than one player". Cloud based services seem to be the trend. Amazon has launched a service of their own and Apple and Google are said to be doing the same later this year.
It would seem that the biggest challenge in finding the sweet spot in a hybrid model is not what consumers will pay, but rather if they still have access to more free stuff elsewhere. This dynamic is shifting a bit as smartphone integration begins to roll out in cars. At that point, it is the ability to seamlessly use a service in a car that will trump everything else. Sirius XM has the most deals in place in the auto channel. Pandora has a few key deals, with MOG and Slacker, and iHeartRadio beginning to do the same.
The field is set with many choices for consumers, the key for these companies is keeping themselves relevant to consumers and finding that magical combination that delivers customer satisfaction while at the same time enhancing the bottom line.
Position - Long Sirius XM Radio