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Requiem for a stream

If you can see (and hear) this playlist, it means Rdio hasn’t quite closed up shop for good. But the end is near for the music-streaming service that found rare success in Canada, and its bankruptcy filing is a sign of what’s to come


As we approach two decades of upheaval in the music industry, it’s only human to want to cling to constants. Music itself is a constant. We use it to soundtrack our lives, building collections and communities around it. How we listen to it, though, has changed drastically. A single generation has watched formats fight for dominance, from cassettes to CDs to downloads to streaming. Streaming is terrible for artists, no question, but for fans, it has a refreshing sense of finality. At last, universal access to the songs we want for a half-decent price. At last, a constant.

Which is great, until those songs disappear. That’s about to happen for everyone using Rdio, the on-demand streaming service that last week revealed it was filing for bankruptcy and selling assets to Internet radio giant Pandora, like a used car that’s only good for a few parts. For much of the world, this wasn’t a big deal: Rdio had long trailed Spotify for streaming-music dominance. But its closing will be felt most strongly in Canada.

We’re rarely a first stop for tech startups, especially those in industries that rely on tangled webs of licensing agreements for content. This is a country so small, with a music-licensing system so frustrating, that Spotify didn’t even show up until 2014. But Rdio gave Canada a chance, launching here in 2010 and becoming a haven for early adopters. The loss of Rdio is a sign of the inevitable contraction of the music-streaming world – how many 2003-era iTunes competitors can you name? – and it’ll be felt harder here than most other countries.

Bankruptcy filings indicate the service likely only had about 150,000 total paying users, far below the 20 million that Spotify boasts. In a candid interview a few days after the Pandora sale was announced, Rdio’s chief executive officer, Anthony Bay, says Canadians were far more loyal to Rdio than users in other countries, sticking with the service for the long term even as competitors arrived. It was Rdio’s second-biggest market, punching far above its usual weight on the tech-world stage.

“It’s a very attractive market,” Bay says. “If everywhere was like Canada, maybe we’d still be around.”

Canadian haven

San Francisco-based Rdio was arguably the first major international on-demand streaming service to plant its feet in Canada and stay here. Back then, Spotify was reticent to enter the country, Deezer was holding off, too, and Apple was hesitant to try streaming at all. Other services, such as Slacker Radio, came in but didn’t make much of a dent in the public consciousness. Hungry music-industry types were eager to try this new way of listening and Rdio delivered.

“It was the service that convinced me that ‘renting’ music was not a bad idea,” says Alan Cross, host of the widely syndicated radio show The Ongoing History of New Music. He signed up as soon as Rdio came to Canada, uses the service to share playlists from his show and plans to use it until it shuts down. (Pandora bought Rdio’s technology and staff, but not its brand.)

Cross is one of many Canadians for whom Rdio became synonymous with streaming, simply because it gave Canada a chance. “I could sit at Starbucks with the dogs on a Sunday morning, read about a song in my e-mail and be listening it to in 20 seconds. It was indistinguishable from magic.”

Sari Delmar, CEO of of the music-focused lifestyle company AB Co., was skeptical of streaming until she tried Rdio when it was the only game in town. She realized it made finding new music – and old favourites – bafflingly easy. “I wanted to be the punk-rock person who held onto my vinyl and physical music, and say, ‘This isn’t best for the artists,’ ” she says. Her company, then called Audio Blood, soon became active on the service, building profiles for the artists it worked with and seeking out new ones. “Rdio changed how I was listening to music,” Delmar says.

In a market free from major competitors – well, mostly Spotify – the service embedded itself in the Canadian music establishment. Rdio sponsored the Polaris Music Prize for two years, also creating playlists for its short and long lists of nominated albums. And Exclaim! magazine, one of the last bastions of print music journalism in this country, has used Rdio to share playlists with fans for years.

“The number of ways you could organize music – by artist, by label, even by related artists – made it ideal for falling down musical rabbit holes and discovering things easily,” says Exclaim! senior editor Stephen Carlick, who, perhaps as a sign of how small the Canadian music industry really is, also briefly worked for Rdio before joining the magazine full time. “By the time other streaming services came to Canada, people were already using Rdio, but Spotify or Deezer easily could have swayed them, and me. But they didn’t – Rdio remained the easiest to navigate as a music fan.”

But when Spotify finally came to Canada in 2014, it came to conquer, deftly marketing itself and swiftly building professional relationships. Exclaim! started straddling multiple allegiances, sharing playlists on both services. Spotify jumped to sponsor the Polaris Prize’s annual gala, too. Early adopters remained loyal to Rdio, but Spotify excelled at signing up new users. The question “Hey, have you heard of Spotify?” became more and more frequent, irking many people who’d been streaming for years.

Squeezed out

Whispered rumours about Rdio’s financial well-being began floating around a couple years ago as the company cut employees and nixed its Canadian office. It eventually partnered with Shaw Communications to bring a local focus to its advertising here, relaunching a Canadian office in the process, but many people watching the streaming industry noticed that Rdio’s marketing was by then falling short of its strategic ambitions. “Their brand went a little bit cold,” Delmar says.

Not that there was much money to spend on marketing. Rdio’s Bay has publicly spoken about streaming music’s unprofitability, but bankruptcy filings obtained by The Globe and Mail show just how much the company truly struggled. Rdio owed money to numerous labels and other clients, and lately had been losing between $1.8-million and $2.4-million (U.S.) a month. In spite of its recent advertising deal with Shaw (and a U.S. one with Cumulus Media), the high costs of music licensing and salaries for 140 staff far outweighed the company’s revenue.

At the end of the day, they’re walking zombies. It’s a matter of time before they don’t exist.

Industry observer Eric Boyko, on smaller players in the music-streaming marketplace

Rdio, the filings state, “no longer has the economic means of funding such significant operating cash flow shortfall.” So the Pandora sale, Bay says, “was a good outcome.” Pandora wanted Rdio’s team and technology, he continues, and while he would have preferred to avoid filing for bankruptcy, he says the asset sale was contingent on it. The death of Rdio did not come as much of a surprise to others in the streaming industry. It was always smaller than Spotify, was likely eclipsed by Deezer and was certainly afflicted when Apple joined the streaming world last summer. Fourth place is a tough spot. “You need [a] much larger scale to be able to build world-class products,” says Tyler Goldman, Deezer’s North America CEO.

Scale is inherently easier for huge companies such as Apple and Google, which can also afford to take losses on their streaming products for as long as they want without affecting their broader finances. For stand-alone services, such as Deezer, Spotify and, for a while longer, Rdio, scaling up is the clearest path to profit.

The profit unicorn

As the industry matures and big names such as Apple enter the game, not everyone will be blessed with scale. Pandora, which has 78 million Internet radio listeners across three countries, will benefit, at least for a while, from Rdio’s global connections.

Goldman insists Deezer, which is available in more than 180 countries, is much better positioned than Rdio was to scale up and further invest in the service. Eric Boyko, a long-time observer of the streaming sector, has a little less faith in stand-alone services. He’s expanded his digital-music-channel company, Montreal’s Stingray Digital, into more than 100 countries through a business-to-business TV model that avoids the high costs of direct-to-consumer streaming.

Boyko points to Deezer’s recently cancelled initial public offering and to Spotify’s continued nine-figure losses as signs that not even the best standalone streaming services will survive with Apple and Google in the mix. “At the end of the day, they’re walking zombies,” Boyko says. “It’s a matter of time before they don’t exist.”

It’s something Bay has given a lot of thought to. When physical sales plunged, he points out, independent retailers went out of business as box stores such as Wal-Mart simply rearranged their shelves. Rdio could be the canary in the coal mine, the first big stand-alone service among many to disappear. Canada’s early-adopting music fanatics are lamenting Rdio’s loss, but those feelings could soon be felt by far more people in far more countries. If the industry itself isn’t sustainable, individual companies can only survive so long.

Music is expensive. Rights holders – usually labels and publishers – are so used to CD-era revenue that licensing costs can be enormous. Bay makes a soft-drink analogy: If Coca-Cola made its syrup too expensive, customers would be furious if the costs rose, meaning it’s the middlemen – bottlers, retailers – that would be threatened the most.

But Coca-Cola can’t get the product to the customers without those middlemen, Bay says. “If the retailers can’t make money, then what you end up with is companies in the business who don’t need to make money.”

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