You’re Launching a Digital Music Start-Up? In 2012? Really?
Question to the people putting money into streaming music start-ups* in 2012: What are you thinking?
Yes, public investors value Pandora at something like $1.4 billion. And private investors think Spotify is worth at least $3 billion. So presumably you’re chasing something like that.
But even those guys are in a precarious position, because they’ve yet to demonstrate that they can afford the cost of music they’re either selling or giving away. And they’re competing with the likes of Apple and Microsoft, which can afford to lose money on this stuff because they think it can help their real businesses.
And you? You definitely can’t afford it, because you have zero scale. So you’re going to burn a ton of money trying to get there.
Quick reminder: Music licensing is crazily complicated in the U.S., and even more so in the rest of the world, since rights deals vary by country. But in general, if you want to get your hands on digital music, you have a few choices:
- Pay the music labels and owners stiff fees for “on-demand” rights, like the kind Spotify offers.
- Pay them stiff fees via a compulsory license for “Web radio” rights, like the kind Pandora offers.
- Or try to avoid some — but not all — of the fees by only working with musicians who don’t have label deals.
The problem with the first two options: You can’t afford them. The problem with the last one: No one** wants to listen to that music.
Don’t want to hear this from me, a mere typer? Can’t blame you there. Conveniently, you can read a more cogent argument from a real pro, published this morning. Here’s the testimony that Venrock’s David Pakman is delivering to Congress today, at a hearing on music licensing reform.
Pakman used to run a digital music company himself and, like nearly every single person who leaves digital music, he has vowed to never go back until the licensing climate changes.
“Although we have met many great entrepreneurs with great product ideas, we have resisted investing in digital music largely for one reason — the complications and conditions of the state of music licensing.”
You want to be the one who proves him wrong? Good luck.
*I can’t believe you’re out there, but I keep hearing from the PR firms you’ve hired, so I guess you are.
**Okay. Some people want to hear it. Maybe the musicians’ friends and family, for instance. And maybe even a few more. But if you want one of those billion-dollar valuations, you want to demonstrate you can get scale. And you’re not going to get it without working with the big guys.