20 Comments

Summary:

This morning news broke that MySpace, the second-largest social network that’s currently reinventing itself as a music destination, was buying imeem, a free online music service that has been remixed (and remade) more times that ’90s dance anthem “Keep on Moving.” TechCrunch, which reported on the […]

akv.jpgThis morning news broke that MySpace, the second-largest social network that’s currently reinventing itself as a music destination, was buying imeem, a free online music service that has been remixed (and remade) more times that ’90s dance anthem “Keep on Moving.” TechCrunch, which reported on the news, didn’t reveal what the deal terms were. I have been dialing sources for information, and have found an interesting backstory behind this sale.

First, it was essentially a fire sale. Imeem, which in the past has been threatened into submission by large music labels, was feeling the heat from second-tier music labels wanting to get their pieces of flesh. On Oct. 21, The Orchard Enterprises, one of the largest independent record labels, sued imeem in U.S. District Court, Southern District of New York. According to the suit, imeem had to pay $150,000 per infringement. On those terms, for multiple infringements, the total could have run into billions of dollars.

Remember the billion-dollar lawsuit filed by Viacom against YouTube? Imeem, I’m pretty sure, knows how painful it is to fight the record labels in the courts. The company fought Warner Brothers, but had to eventually settle by giving up equity in the company. A long, bruising battle is something imeem couldn’t quite afford since it was running low on cash. And it couldn’t pay these guys off. By selling to MySpace, which already has arrangements with The Orchard Enterprises, some of these legal threats might go away. Interestingly, with this deal, record labels that owned a nice chunk of imeem could see their equity in MySpace Music go up as well.

At the same time, founder & CEO Dalton Caldwell hadn’t been able to rustle up more cash. I bet the investors who have pumped in more than $35 million (including $10 million in debt) got tired of putting more cash into what seems like a bottomless pit. Back in September, news emerged that Sequoia Capital, one of the long-time backers of imeem, opted out of funding the company. Back in May, Warner Brothers wrote off a $16 million charge, but gave imeem new money and forgave future royalty payments in exchange for more equity. Fat lot of good that did them.

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 the online music industry remains as risky as walking through a minefield punch-drunk.

Well, I guess when the company had a choice between locking the doors or teaming up with MySpace, it wasn’t a hard decision to make.

  1. Nice, that added a lot of color.

    Share
  2. Music on the web in the US has a zero for lifetime batting average, in terms of creating a sustainable and profitable business. That’s why you don’t see Spotify here yet – the labels want to charge them a fortune for US market rights.

    Share
  3. Either way, I think it was the perfect buy for Myspace. Imeem definitely hits their target demographic and imeem provides widgets that people would love to implement into their Myspace profiles. Despite the issues surrounding the purchase, it all makes sense and is a win/win situation for all parties involved, including the users of Imeem.

    Share
    1. Target demographics and widgets people love are meaningless right now. There is no way for a free music service to make money. Ads don’t pay enough

      Users won’t pay enough to even break even, and you can’t survive on what they will pay.

      Somewhere out there is a model that works, it doesn’t seem like anyone’s found it yet.

      Share
  4. [...] MySpace likely purchased Imeem for a relatively low price, according to GigaOm.  [...]

    Share
  5. [...] Om Malik reported, the company was hit with a copyright lawsuit by music publisher Orchard Enterprises (ORCD). [...]

    Share
  6. Warner Brothers? The movie studio? You must mean Warner Music Group. Get the facts rights.

    Share
  7. [...] per rivelarsi ben fatto. Anche se, come altri hanno osservato, le vere ragioni della conclusione potrebbero essere [...]

    Share
  8. [...] VIEW ARTICLE SOURCE [...]

    Share
  9. [...] infringement at $150,000 a pop adds to the pressure. (Om Malik, who already has the company sold, says Imeem and the others “cut bad deals and had painted themselves into a [...]

    Share
  10. [...] if one web music machine after another is either shut down, restructured, or sold for nothing, we have to ask ourselves why this is. There must be more to the answer than merely [...]

    Share
  11. [...] investment in another streaming music site, Imeem. News Corp.-owned MySpace is in the process of acquiring Imeem at a fire-sale price, just months after it acquired social music site iLike for a fraction of its former value. Bain [...]

    Share
  12. [...] music companies that gave investors high hopes in 2007 haven’t resulted in great returns in 2009. Imeem and iLike have produced weak exits for stakeholders, and Apple’s purchase of Lala seems to have [...]

    Share
  13. man… i thought my internet connection is broken or something, i was wondering why i keep on getting redirected to myspace.so, this is the news after all.. ^^

    Share
  14. [...] month. (Meanwhile, MySpace Music — which recently acquired free streaming sites iLike and Imeem — may also be mulling a paid service, though few people would pay for such a thing; Apple, [...]

    Share
  15. [...] In Ad-Supported Downloads By Paul Bonanos Dec. 22, 2009, 12:55pm No Comments 0 0 0 The distressed sale of Imeem and flameout of SpiralFrog were among several events this year that cast doubt on the [...]

    Share
  16. [...] In Ad-Supported Downloads By Paul Bonanos Dec. 22, 2009, 12:55pm No Comments 0 0 0 0 The distressed sale of Imeem and flameout of SpiralFrog were among several events this year that cast doubt on the [...]

    Share
  17. [...] a freemium model. But music labels’ enthusiasm for free streaming services appears to be on the wane, and as such, whether the freemium model will remain intact for the music business remains [...]

    Share
  18. [...] Imeem CEO Dalton Caldwell gave a crowd-pleasing talk about the failures of his music startup (which sold to MySpace and effectively died about a year ago). Imeem raised over $50 million from investors including [...]

    Share
  19. [...] Imeem CEO Dalton Caldwell gave a crowd-pleasing talk about the failures of his music startup (which sold to MySpace and effectively died about a year ago). Imeem raised over $50 million from investors including [...]

    Share

Comments have been disabled for this post