Internet radio startup Slacker faces a snag

NEW YORK (Billboard) - Slacker Inc., a new venture from the executives behind MusicMatch, Rio and iRiver America, wants to revolutionize Internet radio by making it portable.

But like many companies looking to create fresh uses for digital music that don’t have an existing rights framework around them, there’s a hitch in transforming vision to reality: The San Diego-based startup still must secure the contractual approval of labels and publishers for a never-before-issued interactive radio right that allows for portability.

The right Slacker is seeking enables many hours of interactive radio programming beamed from PCs, wireless networks and satellite signals to be stored for a limited time in the cache of a line of handheld devices the company is developing.

In the scheme of rights clearances, the rate for such a feature lies somewhere between PC-tethered interactive radio and a portable on-demand subscription service, sources familiar with the situation say.

So far Universal Music Group, Sony BMG Music Entertainment and a number of independent labels have signed off on the service, which Slacker hopes to launch in the second half of 2007, according to VP of marketing Jonathan Sasse. But the company still needs to come to terms with publishers, and with Warner Music Group (WMG) and EMI. Given contentiousness over Internet radio costs in the wake of a Copyright Review Board ruling on noninteractive streaming rates, that’s no small matter.

At least one digital music service operator says it has also looked at the concept of portable customized radio and passed on it due to reservations over licensing hurdles. There are also concerns that the money that can be generated from advertising might not be enough to cover content costs of the free ad-supported model Slacker is proposing for its basic tier of service. But Slacker execs say they are confident they can secure the necessary deals and revenue.

Sasse claims the company is close to an agreement with WMG and at least three leading music publishers. As for content costs, he points out that the company will look to bolster its ad revenue with sales of its line of portable devices, and fees from technology licensing to third parties and from premium services that allow users to listen to tracks on demand.