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UPDATED: Better Licensing Terms May Not Be Enough To Save Imeem

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imageImeem has had a good run the last several weeks, landing some new funding and winning better licensing terms from record labels. But how much will this change the music-streaming site’s near-term prospects? Probably not as much as you may think. Even with lower payments per stream, imeem may well not turn profitable by the time the latest funding dries up, which, according to some reports, will be before the end of the year. Many digital-media companies have resigned themselves to the idea that the ad market won’t start growing meaningfully again until 2010 — and in the meantime, imeem will still have to make the payments to the labels. A look at imeem’s site indicates that the current ad mix likely isn’t enough to support even more favorable licensing terms. Here’s why: (Plus, see imeem’s response below.)

A lot of video ad inventory on the site is unsold: Video advertising commands the highest rates from advertisers, and thus is important to a site with high licensing and streaming costs like imeem. However, a sampling of imeem’s streams indicate well less than half of its videos are accompanied by advertising. Sprint (NYSE: S) appears to be the biggest video advertiser on the site.

Banner ads are likely getting low CPMs: T-Mobile is a large buyer of banner ads currently on the site, and Adidas appears to have made a small buy, but most of the banner ads on the site are from advertisers like Lincoln College, Stop & Shop, Vonage and Colgate, which typically do not pay premium ad rates for banners, usually placing buys in the low-single-digit CPM range.

Dearth of custom sponsorships: The real money maker for music sites are custom sponsorships that advertisers pay premium rates for, but Imeem currently doesn’t appear to have many on its site (few sites do these days, but not everyone is at risk of running out of money by the end of the year). AT&T (NYSE: T) sponsors a section of the site that lists tour dates, but sections like exclusive album releases and “New Music Tuesdays” — prime products for sponsorship deals — don’t have any advertising at all. A Marilyn Manson exclusive stream does have sponsorship from Vitamin Water.

Selling music may not be the answer: The company recently said it would develop its own store to sell MP3s. With the average profit per song being about $0.20, that would be a nice incremental revenue stream, but not the boost the company needs to become profitable soon enough.

Here is the response from Matt Graves, VP of marketing for imeem:

“Even during the current economic climate, imeem

3 Responses to “UPDATED: Better Licensing Terms May Not Be Enough To Save Imeem”

  1. runner

    As someone who has worked with imeem extensively in the past, I have to say the saddest part of all this turmoil has been the change in the way they operate. I used to be able to have a near handshake deal with guys and gals there, but now they operate like cornered animals. Everyone there seems scared to lose their jobs and in the meantime are forgetting that the partners you work with are the most important pieces in this business…I know there are always other networks happy to take my money.

  2. Rory Maher

    In response to the company’s comments: Believe me I want nothing more than Imeem to succeed. I'm a firm believer in digital media, and digital music in particular. However, there have been plenty of publicly-available reports on Imeem’s recent financial challenges and it’s my job to take a stance on them. The New York Times published an article where the company’s founder said he had considered pulling the plug before the deals were re-negotiated and that “It reached a point where it was not even clear it was worth doing any more.” In addition, sources have said the recent funding won’t last the company through the end of the year. So, as a former equity analyst covering media and entertainment and having launched a digital music startup myself, I feel qualified and responsible to write an article analyzing the company’s financial health with all this in mind.

    Yes, imeem clearly has more ad deals than those I mentioned, but I don’t think anyone would argue that Vonage deals are commanding premium CPMs or that selling out a small amount of inventory on video streams while you’re paying the labels each time a video is played isn’t an expensive proposition. I suppose if that was, the company wouldn’t have had to raise money and renegotiate its label deals. In addition, the details of the label deals are not publicly-available, but due to continued conversations I have with industry sources it’s doubtful the company now pays less than ½ cent per stream, which still works out to the first $5 CPMs going out the door to the labels.

    Taking that into account, the company’s own admission of financial challenges, and the fact that many believe it will be 2010 at the earliest when online advertising recovers it is not a stretch to do some analysis as to whether or not it can reach profitability before having to raise additional capital.

  3. …I should add that it’s irresponsible to speculate about the health of imeem’s business based on that single-day snapshot, particularly when key details — how much money imeem has raised, how much we have in the bank, the terms of our renegotiated label deals with the labels, and what our ad rates & revenues actually look like—are missing from the equation. Moreover, looking at our business that way overlooks revenue we’re generating through premium services and other indirect channels.