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Summary:

[qi:005] Earlier today, news emerged that Warner Music Group had taken a $33 million writedown on its investments in startups Lala ($20 million) and Imeem ($15 million). What that means is that Warner music is giving up on these ad-supported digital music startups and moving on. […]

[qi:005] Earlier today, news emerged that Warner Music Group had taken a $33 million writedown on its investments in startups Lala ($20 million) and Imeem ($15 million). What that means is that Warner music is giving up on these ad-supported digital music startups and moving on. This comes as no surprise to us: Rags Gupta had pointed out in a post for us that music startups are destined to fail because the labels are gouging them silly. At a royalty rate that is $10 per 1,000 plays, there is little chance any of these startups making money. As Rags pointed out, “While Imeem has licenses from several labels it’s been reported that it gave up a significant piece of the company and agreed to onerous terms, so, needless to say, it likely isn’t profitable on its licensed music, either.”

Imeem is in deep trouble. The company raised an emergency round of money from its existing investors so it can keep the servers running and cut salary checks. Apparently labels are also dissatisfied with MySpace Music and the money it’s generating. Again, not such a surprise for our readers. As startups such as Imeem stare down the abyss, it’s the record labels that will ultimately pay the price. Today’s music consumers have come to expect services such as Imeem as a way to discover music. By asphyxiating these discovery engines, record labels are running the risk of annoying consumers and forcing them to look elsewhere. At least this time around the music industry can’t blame their customers for their problems — they are, after all, the gang that can’t find its way out of a paper bag.

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  1. OM – although I am not sure how much Imeem raised in funding, accordidng to TechCrunch, Imeem seems to have raised a total of 18.5 million – of which $15 million for sure came from Warner Music. How is that not a fair giveaway to Imeem. This is the same company that was being sued bythe labels before they took funding from the plaintiffs!! Add to that the $4 million in fees that WMG does not think it will collect – hence the write-off of $16 million on an investment of $15 million – CLASSIC – top honors in the failed investment category!

    Not defending these label types – their strategic initiatives have been a total failure (and they continue to live a day at a time – and now about 8 years later – still no light at the end of the tunnel).

    But the problem is on both sides. Companies like Imeem start off by just thinking a user base without any understanding of biz considerations in thie music industry (aka copyright laws). So let’s be fair here and not throw all the blame on these labels. The problem lies all with these startups (and most definitely the MORON VCs) who think they can just throw out existing business considerations and use the “disruptive” label in vain.

    When are these VCs going to change the way they invest. Don’t you think you should be calling these buffoons. There are lot of startups who have a thorough digest of the business considerations and take the right approach – but it is not FASHIONABLE enough for these stupid VCs. The list of failed investments is long – SNOCAP, IMEEM, SPIRAL FROG , RUCKUS (if you only met the boy genius associate at Battery Ventures that pushed this investment – you would be scratching your head too).

    Let’s have a fair discussion of what ails the digital music businesss brother OM…… call them all out – and then pave the way for better concepts to deliver on a lasting consumer experience (any else would be unproductive!).

  2. Catullusrl Friday, May 8, 2009

    I’m surprised at your ignorant comments, OM. Everybody knows ad supported music won’t work – the advertising rates are too low. Imeem’s streaming cannabilizes download sales which is not in the record labels’ interest.
    You should at least listen to both sides of the argument before you take the easy option and slag off the record labels.

  3. jasonspalace Friday, May 8, 2009

    what about Pandora? aren’t they profiting? i believe i read somewhere that their service is even moving to integrate with hardware (can’t verify). and i keep reading that Pandora is even earning referral fees from mp3/itunes. that is one service i would be willing to pay to keep going…

  4. ben mackenzie Friday, May 8, 2009

    “…the music industry can’t blame their customers for their problems — they are, after all, the gang that can’t find its way out of a paper bag.”

    i’m afraid you’re quite aways off on this one, dear om. and pandora is in the same boat as imeem, lala and all the rest of the sad lot.

    in actuality, the majority of imeem’s funding came from sequoia and morgenthaler, not the labels. the deals i’m familiar with called for the labels to receive guaranteed upfront payments, revenue share agreements and equity in return for not suing the bloody daylights out of imeem.

    in essence, the music industry surely has no need to support imeem or any other sorry startup. in the world of digital, the labels have no need for a middleman to redistribute their products to consumers.

    instead, they’ll likely pursue a hulu-style strategy which cuts out the startups altogether.

  5. “…the deals i’m familiar with called for the labels to receive guaranteed upfront payments, revenue share agreements and equity in return for not suing the bloody daylights out of imeem”…

    where i come from, that’s called a simple shakedown. it’s also called reprehensible behavior.

    “…in the world of digital, the labels have no need for a middleman to redistribute their products to consumers…

    very! good point. it’s been how many years since napster went on-line? and the labels still have no consumer-facing, technology-leveraging strategies up and running. wtg guys.

    great article om! thx.

    1. “where i come from, that’s called a simple shakedown. it’s also called reprehensible behavior.”

      apologies, but it’s simply called business. what you may not be aware of is that unlike pandora, imeem was initially operating without licences for the use of copyrighted material.

      imeem’s hope was that by the time the labels took notice of them, they could grow traffic to such an extent there would be a massive hue and outcry if they were shut down. in essence, they wanted to replicate the same outcome as with youtube.

      of course, imeem shares the same venture investors as youtube (in this case, sequoia). but the labels were simply having none of this and moved to protect their property.

      quite rightly, in my opinion. imeem took an ill-advised gamble and may have lost.

  6. Nabeel Hyatt Sunday, May 10, 2009

    Warner took a write-down because the writing IS on the wall that ad-supported interactive streaming radio is an amazing traffic driver, but not a sound business on its own. While demonizing the big label is easy (and has some real truth) the full truth is more complicated than that.

    Yes, the labels asked too much, partly out of anger and partly out of greed. Some might say that’s business, but it is not smart business when you know your retail channel is dissipating and it time to seed new viable opportunities to see what blossoms. Not to shut down those opportunities.

    But, by the same token, interactive radio networks, as they are currently formed, don’t seem to be one of those flowers. They are not monetizing well, at all. So there is some blame to go around in this case. These networks have so far not panned out as a profitable business, but they certainly they would have had a better chance if a significant portion of their revenue and investment was going out the door to labels & publishers.

    1. Nabeel

      I would have to disagree with you – labels are to blame for this because they are indeed greedy and shortsighted. They have failed to curb their own greed – if they had there would have been an interesting new ecosystem evolving around “music.”

      The future of music (and the business models) need innovative thinking on part of everyone – startups, artists, tech giants and yes, the record labels.

  7. Imeem’s iPhone App Competes With Apple on Its Own Hardware Thursday, May 14, 2009

    [...] out of users, including selling ringtones and tickets. The company has struggled in recent months, losing the confidence of investor Warner Music Group and possibly other stakeholders such as Sequoia Capital, although it [...]

  8. Why imeem Really Sold Out Tuesday, November 17, 2009

    [...] I have been fairly skeptical if imeem and their ilk, mostly because I felt that they cut bad deals and had painted themselves into a corner. Frankly, I am not that hot on MySpace Music either. MySpace, earlier bought iLike, another free music service for $10 million — a firesale price – mostly to get hold of the talent. The bargain basement sales of iLike and imeem once again shows that online music industry remains as risky as walking through a minefield, punch drunk. [...]

  9. Apple in Talks to Acquire Lala: Report – GigaOM Friday, December 4, 2009

    [...] executive told me in late October that it still has $13 million in the bank. Warner Music Group wrote off its investment in Lala in spring 2009, at the same time it wrote off its investment in another [...]

  10. darnell wright Sunday, January 10, 2010

    What ever the problem was that imeem.com has === it hurt me and other people that use the site for relaxing “from the real world that is mess up …I read these bullshit and felt like no more ..so why money..power..respect who had every thing and it was only going to get better it funny how you do this like a drop of a dime ..well it cool. because mab’y my space might be good for me but i will not lose im proud to be USA. to show the world what it like on this side..and then you dont no what it fills like to be in the hood and have nothing to do but to stay out of trouble and check out imeem .com to fill what it fill like to see the music bizz real time..no other site was messn with imeem.com you had LOVE all over the USA.and noby can change that

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