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  • Seeking Alpha Interview: Jelli CEO and Co-Founder Michael Dougherty  0 comments
    May 10, 2011 2:23 PM | about stocks: SIRI, P, AMZN, MSFT, NOK, GOOG, WWON, CBS, IHRT, CDELA, YHOO
    In a recent Seeking Alpha article, I discussed an online radio offering, Jelli, that somehow flew under my radar. After reading about the company and experiencing its site, I cannot help but wonder why the concept has yet to take off. I think Jelli can be both a competitive threat or a key partner to terrestrial radio broadcasters, Sirius/XM (NASDAQ:SIRI), and online radio pioneers such as Slacker and Pandora (NYSE:P).

    Because Seeking Alpha readers have responded favorably, for the most part, to other interviews I have conducted, I intend to conduct more. To learn more about Jelli and attempt to flesh out how the company could matter to investors, I reached out to Jelli CEO and Co-Founder Michael Dougherty via email.

    Rocco Pendola: Please provide a short bio.

    Michael Dougherty: I’m the CEO and co-founder of Jelli. My co-founder, Jateen Parekh, who is Jelli’s CTO and former Amazon (NASDAQ:AMZN) Kindle executive, and I founded Jelli to reinvent what is possible with the radio, using the power of the web. I have about 18 years of experience with new media, web services and corporate development. Prior to Jelli, I was the vice president of business development at Tellme, a leader in speech applications (acquired by Microsoft [MSFT] in 2007), which pioneered the idea of unlocking the power of mobile devices using speech technology. Prior to that, I was the senior vice president of business & corporate development at Loudeye, an early leader in music web services (acquired by Nokia [NOK] in 2006). I spent the first part of my career in investment banking.

    RP: Please provide a short history of Jelli. How did it come about? When did it start? What are some key milestones?

    MD: Jelli is crowdsourcing for the radio, enabling new experiences and real-time understanding of traditional and online radio audiences for more relevant programming and advertising. We combine social web, iPhone app, and the cloud to create something new, from something old (radio). Some call us a sort of a “social Pandora” experience... with a twist.

    Our platform allows users in certain local markets to control what is broadcast on old school terrestrial radio airwaves in realtime. We like to think we are transforming an offline space that hasn't seen much innovation in decades, but remains massive in terms of market size ($17.3B in US in 2010) and users (242 million people weekly in US).

    We launched Jelli as an initial pilot in mid-2009. This pilot went well, and in 2010 we launched in 25 markets a series of night shows to validate the experience further. We were able to deliver ratings performance and engagement, which drove value for the stations we launched with.

    This led to a huge new opportunity. We announced an agreement to launch what we believe may be the world’s first terrestrial radio stations which are completely powered by the social web (24-hours a day). In a first for traditional broadcasting, Jelli will take over all programming operations for two terrestrial FM radio stations in Las Vegas under a multi-year deal. The stations are going to be re-branded “Jelli” and will broadcast on an automated basis from our cloud platform 24-hours a day. Importantly, users of Jelli's iPhone app or website will be able to choose in real time every song that plays on air on these stations.

    RP: How much venture capital has Jelli raised? Dates, amounts, and from whom?

    MD: We’ve raised $7 million of venture capital, including $2 million angel round led by First Round Capital in late 2009 and $5 million Series A led by Battery Ventures in April 2010. Our investor group has made investments in Facebook, Youtube (NASDAQ:GOOG), Linkedin, Groupon and many other leading web platforms.

    RP: Do you anticipate getting more venture capital? If so, when?

    MD: We have strong backing from our existing investors, so we have nothing to announce related to future financing. In general, our view is that raising capital is a strategic process. For example, we’d consider raising additional funds if we could bring an additional investor who could add significant value to our opportunity.

    RP: It's probably a bit early for this, but what are your thoughts, in terms of the possibility and timing, of Jelli doing an IPO?

    MD: We aren’t really thinking about IPO at this point. However, we’re excited about the size of opportunity as well as possibility to make a huge impact on a massive industry.

    RP: Do you ever wonder why there's so much excitement over the Pandora IPO? To that end, does it puzzle you why they have gotten so much more venture capital than Jelli?

    MD: Pandora is very exciting! It has significant market share in the growing online and mobile segment of the radio advertising market. If they retain this share and this segment continues to grow, Pandora will be a very valuable company.

    We believe social web is a highly disruptive trend and will make a big impact on radio. Jelli is creating social radio, and we bridge (or disrupt) notions of “traditional” and “internet” radio broadcasting. Given our model and margins, I’d expect our overall funding and eventual capitalization levels may look different than Pandora’s, down the road.

    RP: How does Jelli make money? Obviously, it's, in part, from signing up stations, but give us some idea of this trajectory and how the money flows? Do you have any other revenue streams?

    MD: Currently we are compensated by receiving a certain number of minutes of terrestrial advertising spots each hour we are broadcast. Westwood One (NASDAQ:WWON) sells those units for us, and we generate revenue and cash flow from our broadcasts. We are one of the few online/mobile experiences that can tap deeply into the $17B US terrestrial radio advertising market.

    There are other opportunities, however, which we feel are highly attractive, including taking advantage of the huge engagement we see from our users. Our users take about 100x more actions on Jelli in a month vs. Pandora thumbs. We believe this “signal” is highly valuable and allows for social playlists to be created, which are a different experience than a personalized playlist off of an algorithm.

    RP: Do you ever intend on charging subscribers, maybe for more features like Pandora does?

    MD: We think the best revenue model will be a free experience for users, supported initially by advertising. We think there are opportunities down the road to experiment with new models as well (see prior answer).

    RP: I do not see ads on the site. Can we expect some soon as another revenue generator?

    MD: Currently we only broadcast terrestrial audio spots. Eventually we will likely experiment with some online and mobile advertising.

    RP: Since Jelli started operations what has the balance sheet, profit & loss, revenue and expense numbers looked like? Where do you project them to head?

    MD: We are privately held and not releasing financial information at this point. We’ve been very focused on our product development and engineering efforts, which is where the majority of our funding has been invested. We’ve also invested in validating our platform with launches in multiple markets across the US. Radio is a profitable business, especially if you don’t employ leverage! Our revenue model enables each market launch to be profitable, so we’d expect revenues to grow and margins to expand as we roll out nationally.

    RP: Exactly, what does it take to power Jelli from a technological standpoint? Could somebody else, like Sirius/XM, Pandora, or a terrestrial company, just start doing what Jelli does one day without Jelli? Does Jelli own any of the technology or platforms that make the whole experience possible? Which vendors do you use and for what?

    MD: We’ve invested a couple of years developing an extensible cloud platform that supports a highly social user experience online and via iPhone.

    Our team has deep web and software technology backgrounds, so the entire stack was built by Jelli - everything from our consumer experience to the back-end platform and automation server that integrates to FM radio towers. We’ve filed patents on our technology. Our technology is built upon Linux, Java, and mobile technologies etc. and sits currently on Amazon Web Services cloud computing platform.

    It would be difficult for a broadcaster with legacy infrastructure to immediately replicate the fundamental integration of social, web, mobile and broadcast that we’ve achieved with our platform.

    RP: In the article I wrote about Jelli for Seeking Alpha, I said, "The idea of a Jelli station on Pandora makes no sense for Pandora. It would simply expose Pandora as inferior." Your thoughts?

    MD: A Jelli experience on Pandora could be interesting! It would be more social, realtime, and created from the social graph vs. the Music Genome project. Jelli on Pandora would also likely lead to more of a “lean forward” experience. As mentioned above, we generally see even more of a “signal” in the form of user votes and actions and participation, than Pandora’s thumbs. It could create some interesting differences in the playlists, and more engagement for Pandora with it’s user base.

    RP: I also wrote, "Running Jelli stations on Sirius/XM, however, could make a world of sense. It would give Jelli access to Sirius/XM's 20 million-plus-and-growing subscriber base. And it would add even greater diversity to Sirius/XM's excellent content lineup." Have you talked to Sirius? Are you considering it? Does it make sense for either party?

    MD: We’d love to have a station (or two or three) on Sirius!! I think Sirius listeners would love it. Just like our terrestrial broadcasts, the concept of harnessing user interest to shape in realtime the songs that actually play could be powerful for Sirius. It would certainly make Sirius feel much more social and connect the huge, passionate Sirius community in new ways. In addition, Sirius’s ability to go deeper into genre’s could enable Jelli’s catalog to be pretty broad on those channels, which could be very powerful.

    RP: To that end, irrespective of your last answer, hypothetically, do you think terrestrial radio companies would be upset if Jelli did something with Sirius or a company that competes with terrestrial?

    MD: It’s a competitive market for listener attention, but I’m sure a Sirius version of Jelli could be sufficiently different from a local broadcast version, to avoid issues of exclusivity. Plus Sirius is of course focused on it’s national subscriber base, while terrestrial radio is (a) free and (b) local. We’d love to work with both!

    RP: Why do you think large radio companies like CBS (NYSE:CBS) and Clear Channel (CCMO.PK) have yet to embrace Jelli on larger scale? I wrote: "As of this writing, a handful of privately-held companies, such as Greater Media and Townsquare Media, represent the bulk of FM stations that have signed on with Jelli, including Thursday's Vegas deals. As for big-name public companies, Jelli runs on two CBS stations, one Clear Channel station, and one Citadel (OTC:CDELA) station. It's beyond me why Clear Channel, for instance, has not handed over the reigns to Jelli on at least one station per market. Frankly, it beats the pants off of most anything else it's doing."

    MD: Jelli breaks a lot of traditional rules on how to operate an FM radio station. When we started, we made some traditionalists uneasy given they believed control over song order was important. We believe engagement is also valuable, and that listeners are used to a more eclectic style of playlist in 2011. After being in the market for 12+ months on 25 stations, we’ve been able to validate ratings improvements and engagement, so I’d expect we will be viewed as less “risky” to even the more conservative programmers in radio now.

    RP: Back to some numbers, what does signing one station mean to Jelli's bottom line? How much is say the WYSP hook up worth? Or the recently announced Vegas deals?

    MD: We can build a nice, profitable business with a series of night shows across the country. WYSP is a night show for Jelli. We can build a larger, profitable business by transforming 24/7 radio stations in markets all across the country (and globally). Our Las Vegas launches are 24/7 radio stations.

    RP: What would a deal putting Jelli on say, 13 of the 130 CBS Radio stations mean to Jelli in terms of revenue and taking the next step?

    MD: Given our model, any level of broad roll-out in major markets would generate strong revenue and margins. It would also enable us to either reinvest in our platform, which is the likely path, or to become profitable.

    RP: I know you collect some information from your users. What's the core age of your users? Any related numbers would be great as well as how anything has differed from what you expected?

    MD: We are strong with 18-45 year olds. We took a station in a major market from #17 to #3 in their market, in that demographic. One surprising thing was how strong we’ve been with teens as well. You’d expect teens to love social web and mobile, but given the declines in listenership in terrestrial radio with teens, we were pleased to see a strong level of engagement and time spent listening from that demographic.

    RP: You collect some zip code info. It does not seem scientific, but based on what you know, where are a good chunk of Jelli users coming from?

    MD: Not surprisingly, Jelli listeners are mainly from the local cities we have launched our FM broadcasts. We expect that Las Vegas will be one of our largest markets to date, once we launch our 24/7 stations there next month.

    RP: Tell us about the iPhone app. How many downloads? And will you expand the mobile strategy? And maybe go after tablets, etc. somehow? If so, how?

    MD: Mobile is a critical category for radio. With 50% of radio listening occurring in the car, it is a highly mobile medium. Our iPhone app has been a huge catalyst for Jelli. iPhone usage represents over 60% of our total usage since launch of the app in November 2010. We haven’t disclosed the number of downloads but the number is getting some scale now. Given our traction with our iPhone app, we’re investing heavily in mobile.

    RP: Assuming that there are, can you tell us about some of the people with radio backgrounds Jelli employs or works with? I understand the founders, including yourself have no prior radio experience, so you likely needed somebody to work on production, imaging, etc..

    MD: Our team comes from Tellme, Amazon, Yahoo! (NASDAQ:YHOO) and Microsoft. We do work with some consultants who provide us with deep radio experience and advice on our product experience and partnering with radio groups. These relationships include Fred Jacobs and his team from Jacobs Media and Joel Salkowitz, a well know programming consultant. We hire great producers and voice talent as well to make a great radio experience.

    RP: How much control do Jelli users really have? After using Jelli, it's clear to me that it's worlds more than they ever have, but... It seems that Jelli stations, whether the ones you put up online or the ones on FM, all start with a core playlist that listeners have the ability to tweak. Is this accurate? It seems to me that the attraction is less about having control; for me, it's more about the interactive, social media and entertainment experience.

    MD: Jelli hands over complete control of what plays next to the users. It was important for us not to create a false experience like a request line. Jelli’s cloud platform is much more realtime that traditional radio infrastructure. This enables users to choose what song plays next, just seconds before it goes on air.

    The basic method users choose a song to play is by voting. Every track has a score, and the track with the highest score will play next. It’s that simple. By voting, you add a +1 or a -1 to the score and thus shape the order of the playlist. Other users are doing the same thing simultaneously, creating a social experience of shaping the broadcast together. We also added two “power-ups” to make the experience fun, and take advantage of basic game mechanics to drive engagement (when you run out of “rockets”, one of our power-ups, you are awarded more by coming back the next day).

    Each station has a set music catalog which is tied to a basic musical format of that station. The catalog is created ahead of time, but we add songs to the catalogs all the time. The users of course create the playlists from this catalog. We also have three “open” streaming-only stations which allow an extremely eclectic playlists, and interesting themed rock blocks as well.

    RP: Will you ever have a feature where users can actually enter songs and actively add them to a playlist as opposed to voting on what's effectively been suggested to them? Or do you already? I could have missed it.

    MD: That would be a great feature. Currently, artists can submit their songs to Jelli at http://noise.jelli.com/artists/. In fact, we are running a partnership with Indaba Music related to adding music from indie bands and giving them a shot for greater exposure. We also have a “Request” forum for all of our channels, which allows users to request songs and vote and comments for these requests.

    RP: Is there anything else you would like to add?

    MD: Radio is a huge opportunity, and we fundamentally believe that a few companies will shape it’s future over the next 10 years. It will be a lot of fun to see if Jelli can shake up the landscape, and help radio evolve.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Author may initiate a long or short position in SIRI, AMZN, or CBS at any time.
    Stocks: SIRI, P, AMZN, MSFT, NOK, GOOG, WWON, CBS, IHRT, CDELA, YHOO
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