App Store tire-kickers are a tough crowd.
Sirius XM Radio's (Nasdaq: SIRI ) online-streaming application is one of the lowest-rated wares in Apple's (Nasdaq: AAPL ) marketplace for iPhone and iPod touch owners. Its average rating is a measly two out of five stars, but that isn't a judgment on the functionality of the software itself. Most of the lowest one-star ratings come from folks who apparently have never even activated the app.
Here are just a few of the recent reviews:
- "As an existing subscriber, I'm very disappointed that they will charge extra for this service."
- "I'll take a pass on Sirius/XM trying to squeeze another $3 a month out of me just so I can listen to a content-crippled version of their service."
- "What a joke. So we are going to pay MORE for this service and we don't get the two premier talk shows on Sirius."
Even some of the more favorable reviews, from users who apparently have activated the service, are noncommittal.
"Great audio quality and decent selections, but definitely not worth the $12.99 monthly premium to non-subscribers like me," writes one three-star reviewer. "I'll stick with free Yahoo! (Nasdaq: YHOO ) Internet radio."
It appears that charging users will be a challenge for Internet radio -- and not just for Sirius XM. Even niche leader Pandora Music learned the hard way.
Shut that box again, quick!
"We originally thought it was a subscription business and did that for all of three weeks before we realized that it had to be an advertiser-supported free service," Pandora co-founder Tim Westergren tells TheStreet.com this week. "Consumers expect radio to be free, and that's not a habit we want to spend our time trying to change."
Unfortunately, ad-supported Internet radio doesn't make enough for larger operators with considerable overhead to run a profitable business.
Pandora caught a lucky break this month, when the industry won a reprieve from paying stiff royalties to the music industry. Pandora will now have to pay just 25% of its revenue to the labels, instead of as much as 70% under an earlier deal. The music-discovery site is still capping free usage at 40 hours a month, charging those who want more a modest $0.99 a month.
A monarchy of royalties
Pandora's not the only company breaking out cover charges under certain circumstances. CBS' (NYSE: CBS ) last.fm already slapped a monthly fee of roughly $4 to listeners outside of the United States, United Kingdom, and Germany.
The new fees won't affect most listeners, but as more sites start charging for music, Sirius XM's demands of $3 a month for existing subscribers and $13 a month for non-subscribers will appear more reasonable.
Or perhaps subscription fees will go the way of the dodo. Most media heavyweights with Internet radio sites and App Store entries, like CBS, Time Warner's (NYSE: TWX ) AOL Radio, and Clear Channel's iheart radio, are unlikely to charge consumers in cyberspace when terrestrial radio remains free. This should keep pricing honest, forcing Internet radio to evolve its model, perhaps toward something entirely ad-supported.
Music-streaming kids and young adults aren't the most receptive market for ads about legal downloads, concert tickets, or band merchandise, but they're a good place to start. Building social networks around the stations -- less bandwidth, fewer royalties -- could be even better for reinforcing those ads' messages, and padding operators' bottom line.
Until everyone erects a tollbooth, you can't blame music fans for going the legally free route.
Do you think Internet radio will stay free? Got ideas on how to monetize it? Post your thoughts in the comment boxes below.
More news than static on Sirius XM:
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