On a beautiful fall day last year, Kurt Hanson flew to California and made a solo drive to Culver City in the hopes of winning an investment from one of the world's richest men.
Hanson, who founded Internet radio outlet AccuRadio in 2000—15 years before the launch of Apple Music, for the record—wanted capital to jump-start his Chicago venture. The audience with Patrick Soon-Shiong paid off; the billionaire medical research mogul paid $2.5 million for a fifth of Hanson's company. “He's been a patient and supportive investor,” Hanson says.
That's going to be key. AccuRadio is growing at the fastest rate in the industry, but partly because competitors led by Pandora Media, Spotify, Deezer and Apple Music are so much bigger. Hanson, 60, and his team of radio industry veterans say AccuRadio is different because its free service is targeted to middle-aged workers at desks instead of smartphone-toting millennials who might pay a subscription fee to avoid commercials. But to make money AccuRadio needs to attract advertisers, too.
The company grew out of Hanson's long career in media publishing. He founded his first startup, Strategic Media Research, in 1980 with University of Chicago roommate Joe Mansueto, who broke away a year later and became a billionaire by launching Morningstar (Mansueto has not invested in AccuRadio).
Hanson segued in 2002 to create RAIN Enterprises, publishing the Radio and Internet Newsletter and hosting industry conferences. He developed AccuRadio on the side to demonstrate to readers what online radio might look like, but it wasn't until 2013 that he turned it into the Chicago business he leads as CEO and majority owner.
He tapped former Harpo Radio General Manager John Gehron to be chief operating officer and hired longtime RAIN employee Paul Maloney as executive vice president of music programming.
While the giants of streaming music all strive for the widest catalog of songs, AccuRadio does not want to be all things to all listeners. Instead it seeks to please the 35- to 64-year-old office crowd, who Hanson says are an “upscale, educated, at-work, desirable audience for many advertisers.” Among current sponsors are Geico and Napa, the National Automotive Parts Association.
SMOOTH JAZZ, 'STAR TREK'
AccuRadio has a million registered users, with about 27,000 listening on average at its 2 p.m. peak time. It offers hundreds of genres, from smooth jazz and Celtic love songs to “Bluegrass Belles” and Pitchfork Festival picks, drawn from 250,000 songs.
At the company's offices, above Morton's Steakhouse in the Loop, a large video shows a map of the U.S. that pops constantly with icons displaying the traits of users as they log in. The space is crowded with 16 employees and littered with “Star Trek” set pieces collected by Hanson, who started watching the show in its first season in 1966.
While revenue has been on an upswing this year, pushing income just past break-even, it will be harder to stay profitable next year. Now that it's pulling in more than $1.2 million annually, AccuRadio will be forced to pay the same royalty fees that are the biggest expense for larger rivals. And they could go up, depending on the outcome of a Copyright Royalty Board decision in December.
Even industry leader Pandora has begun to founder under rising pressure from competition. The Oakland, Calif.-based company cut its revenue forecast in October, just months after the arrival of Apple Music, and its stock plummeted 45 percent. “It's a crowded market with deep-pocket players all jockeying for position,” says Steven Frankel, a digital media analyst in Boston at Dougherty.
About 70 percent of Pandora's revenue pays for royalty fees, Barrington Research media and entertainment analyst Jim Goss says. “It's not easy to break into the market or to be successful even if you succeed in breaking into the market,” he says. “Pandora is just now crossing into the black.”
Pandora may have 71 times more users than AccuRadio, but when it comes to profits, at least, bigger isn't always better.