According to conventional wisdom, consumer startups should move to San Francisco for access to capital, talent, and ideas. But if you’re launching an online music company, consider London or Berlin. For the past few years, a crop of internet music startups have been plying their trade in Europe, away from the glare of the major labels in the United States. Their playbook has been to achieve critical mass — with their product, users, and business model — before jumping over the pond.
Why Europe? One major reason is that it’s relatively easier to do licensing deals with the major labels there than in the United States. The U.S. is a much larger market, so new licensing models and frameworks undergo greater scrutiny because of the risk involved.
“The minute that I tell the major music labels that I am not interested in signing for rights to the U.S., the negotiations over terms become much, much easier,” said Axel Dauchez, CEO of the French start-up Deezer, in a recent Reuters story. The company plans to launch nearly everywhere but in the United States.
Entrepreneurs should also note that investors in Europe aren’t as jaded when it comes to music startups as their U.S. counterparts. Index Ventures stands out in this regard. Bolstered by their success with Last.fm, they’ve added Songkick, Soundcloud, and RJDJ to their portfolio in recent years. As a VC told me earlier this year, the reason he likes consumer music plays — as opposed to video ones — is that the licensing models are relatively well defined. There is a degree of certainty regarding the rates one has to pay for electronic sell-through, versus on-demand streaming, versus non-interactive radio, which Rolling Stone recently documented. Compare that with licensing premium video content, where the various licensing windows and unclear economics involved leads to uncertainty and risk.
All this has effectively turned Europe into a test bed for innovation in music (with the notable exception of internet radio, where the fragmented licensing regimes resulted in Pandora blocking non-U.S. listening).
Spotify is an excellent example of a digital music company that launched first in Europe and then expanded to the U.S., and their growth has been well documented. Much of their delay in getting licensed for the U.S. was rumored to be around the cash advances desired by the labels based on how “freemium” their model would be.
Before Spotify, there was Last.fm, the grandfather of European music startups. They came onto the scene just as I was winding up as COO at the internet radio network Live365. At the time, Last.fm’s look and feel was fresh, and they were innovating at an unbeatable pace. It boggled the mind that someone would invest in internet radio in 2002 given the industry’s trials and tribulations, but they persevered and CBS bought them five years later for a cool $280 million, making the company one of Europe’s biggest consumer start-up success stories.
Besides Last.fm and Spotify, these are the music start-ups to watch in Europe:
Songkick: Started by a Brit and an American, they are on a roll, having reached 100,000 activations within two weeks of launching their iPhone app. They’ve raised funding from Index, and earlier this year they poached an exec from Google to be their CTO. Songkick is centered around a concert listings service, but with social and commerce features that make it much easier to know when shows are happening near you.
Soundcloud: Billed as “YouTube for audio,” this is one of Berlin’s most prominent startups. Founded by Swedish entrepreneur, Alexander Ljung, the company is growing exponentially. It recently surpassed 8 million contributors, up from 3 million in February.
7Digital: Led by industry veteran, Ben Drury, the company is a pioneer in selling digital music. It continues to grow and be profitable, despite walking among giants like Apple and Amazon. Bolstered by its one million mobile users, 7Digital has expanded into the Asia Pacific region.
Mixcloud: Bootstrapped by computer science students from Cambridge, this startup provides a platform for sharing talk radio and music mixes. The site’s members have already uploaded 100,000 programs, and the founders have become fixtures on the Silicon Roundabout scene.
About the Author: Rags Gupta, based in London, is currently on sabbatical from the online video company Brightcove, where he has been vice president, international. Prior to that, he was an executive at Live365 from 1999 to 2004 and is currently an investor/advisor at 8tracks. He can be found at twitter.com/ragsgupta.
Image courtesy of Flickr user photosteve101.
Music startups test their mettle in Europe:
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RT @gigaom: Music startups test their mettle in Europe http://t.co/Sg7gMxzu
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Music startups test their mettle in Europe http://t.co/F7TqwOks via Raghav Gupta, Brightcove
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Licensing deals are easier? Thinking about Germany this is not the case. We don’t have Spotify, MOG or Rdio. So licensing deals are even harder than in the U.S.
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“@gigaom: Music startups test their mettle in Europe http://t.co/ZQ8fm8cO” nice high-level summary from @ragsgupta
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RT @Buzzsonic: ‘Music startups test their mettle in Europe’ http://t.co/ByJk0iUE @ragsgupta
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RT @KevinDGreer: Music startups test their mettle in Europe http://t.co/6RmeqvsK (via @gigaom)
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Music startups test their mettle in Europe — http://t.co/Y8QyAk93
“If I tell major labels I’m not interested in signing for rights to the U.S., the negotiations become much easier.” http://t.co/bqUEweb8
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@mixcloud, @soundcloud, @spotify + Co. RT @Buzzsonic: ‘#Music #startups test their mettle in Europe’ http://t.co/yMHL1q9J @ragsgupta
Its nearly impossible here in Germany. Jan is completly right. We are always envious looking over to the US-market with spotify and all these services. This is not possible thanks to GEMA 8This Video is not availble in your country).
nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
RT @soundboy: nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
RT @soundboy: nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
Music startups test their mettle in Europe http://t.co/BaY3nXS8 featuring @7digital [client]
RT @soundboy: nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
RT @soundboy nice piece on music start-ups in Europe by @ragsgupta http://t.co/zE1Pf41n #fb
RT @Buzzsonic: ‘Music startups test their mettle in Europe’ http://t.co/Z3MHHG8B
RT @soundboy: nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
Music startups test their mettle in Europe http://t.co/UN3vd45X via @Spartz
Europe for the music http://t.co/9WUmR66f
Shout out to @ragsgupta for mentioning @Mixcloud in his piece about music startups in Europe on GigaOm http://t.co/AbACHc89
Shout out to @ragsgupta for mentioning @Mixcloud in his piece about music startups in Europe on GigaOm http://t.co/alYN1DKO
RT @mixcloud: Shout out to @ragsgupta for mentioning @Mixcloud in his piece about music startups in Europe on GigaOm http://t.co/AbACHc89
Music startups test their mettle in Europe http://t.co/TiJyDwL9
Why Europe is the leading region for music start-ups http://t.co/FWjw7bUP
RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
http://t.co/iQp7aTh1
RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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RT @TugaK: Music startups test their mettle in Europe
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Innovations in EU music scene venture where the US can not or will not go. #auraljoy http://t.co/w1EUSzkV via @mikeloukides
RT @mixcloud: Shout out to @ragsgupta for mentioning @Mixcloud in his piece about music startups in Europe on GigaOm http://t.co/AbACHc89
Music startups test their mettle in Europe – http://t.co/VT8Kzv4K
RT @soundboy: nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
RT @soundboy: nice piece on music start-ups in Europe by @ragsgupta http://t.co/sSL4uLyh
So much great innovation in music coming out of Europe. #in http://t.co/EAAKWKaK
So much great innovation in music coming out of Europe. #in http://t.co/EAAKWKaK
I suggest to add http://www.setlist.fm – the concert wiki.
setlist.fm is one of the biggest databases of live performances with the help of music fans across the globe.
Music startups test their mettle in Europe http://t.co/8dBhrTrE
Music startups test their mettle in Europe http://t.co/Y3HbotCX
Music startups test their mettle in Europe http://t.co/yT1yA8ME
Good article on music space innovation coming out of Europe: http://t.co/sK5Wm69d
Music startups test their mettle in Europe @HamptonH http://t.co/yPikhxh9
Music startups test their mettle in Europe http://t.co/BQb631ml
Europe is no cake walk for licensing. A startup may require work to launch in multiple countries while licensing deals in the US — while difficult — gets you access in the world’s largest music market.
Odd that you mention Songkick and SoundCloud. Songkick does not license content from either record labels or publishers. SoundCloud has user-generated content and does not have the same licensing issues as, say, Spotify or Pandora.
Mixcloud actually represents the business model that is easiest to launch in the US: a non-interactive webcasting service that uses a statutory license rather than a negotiated direct license.
Music #Startups test their mettle in Europe – http://t.co/wvtL6heK
RT @RJWells: Music startups test their mettle in Europe @HamptonH http://t.co/yPikhxh9
Music startups test their mettle in Europe http://t.co/GAtF9PAC
Good comments. It’s true that Germany/Gema is notoriously hard to license, but I found it telling that Soundcloud operates a user-generated site in Gema’s “backyard”..
RT @toetoe: Music startups test their mettle in Europe http://t.co/ozs9O4Gu
RT @toetoe: Music startups test their mettle in Europe http://t.co/ozs9O4Gu
Music startups test their mettle in Europe — Cool but Rags: don’t forget failure is a big no-no here. Big handicap. http://t.co/rDjkz5SA
Music startups test their mettle in Europe http://t.co/xAcjJ0eL hey how about Asia????
you forgot Official FM
http://official.fm/
from switzerland