Blog Post

Death By Discovery: The Interminable Churn Of Music Startups

The more I think about it, the more I see the music start-ups space as a dog that won’t ever bark..err…sing. The MySpace-iLike deal — and the price that iLike got — is a perfect example of what will continue to shape all of the online and mobile music startups. As I see it, there are endemic structural and cultural reasons for it. The first part, something that has borne out over the last few years, is obvious: that margins in music downloads are horrible for anyone without iTunes scale (and even that’s not growing rapidly), and that music labels are the choke point for most of the startups in the download space. Then, the other part about ad-supported music startups that we all instinctively know: too little ad money sloshing around for too many startups and the economics of ad rev share don’t work out well. Plus, there are too many interested parties trying to leech off money at every stage of the value chain for this to ever scale.

Then, the platform dependence problem: as the iLike price shows, any startup that wants to achieve scale will be at the mercy of platforms like MySpace, Facebook or any other social media service that it piggybacks on.

But my contention is that once all music becomes digital, whether through downloads, on-demand or streaming, then there are only so many ways in which startups can differentiate themselves.

There are only so many ways you can enhance an always-on, playable-anywhere experience. One could argue that music discovery and recommendation still has a lot going for it as a sector, but it is completely overblown, especially when that has to compete with all the other information/media/services that overload users with push media. I think user communities will coalesce around artists, and not central services, which also weakens the argument for discovery/recommendation/community startups.

Besides, users are not loyal, that we have seen time and again: first it was, then iLike, then Imeem, then Pandora, then Slacker, then Spotify, and it goes on and on. For me as a user, it doesn’t matter if I hear a song on one or any other of the services. Last night I discovered, and now I am on to that. If I have fun discovering new artists, I have fun discovering new ways to discover new artists and songs as well. And that is what consumer behavior is going to be: if you think music and artist discovery is the holy grail for differentiation, then be ready for new-music-service discovery as a fact of life as well.

P.S.: As a slight aside, my favorite music discovery service is, surprise surprise, YouTube (but that’s another post).

16 Responses to “Death By Discovery: The Interminable Churn Of Music Startups”

  1. James Glicker is still going strong….we cover most of Europe now and are going into the US this fall. Granted, we cater to a small segment of the market–classical music lovers–but we have found that by offering something different from the free services (in our case, CD-quality, lossless recordings, as well as better metadata and deeper catalog) we can make a living. My two cents: the labels have become the whipping boys for startups that don't have a way of making money, or just don't want to 'deal' with copyrights. I have found the labels to be far more cooperative recently, although it rankles me and my investors to raise expensive venture capital and then turn lots of it over to multi-million dollar companies. Anyway, watch this space as we tackle the world's largest market………..

  2. No mention of Jamendo ( This is already artist-centric and overcomes copyright issues via creative-commons licenses. They have recently added payment options and additional artist promotion links to and other distribution options. This is not controlled by major record labels, thank goodness. The quality of the music on this type of publisher will continue to rise as artists find a way into the revenue stream. Also, when the on-line community begins to respect intellectual property of others by participating in the creative process themselves, then another generation of new creative products will be available, which will render the fight over existing copyrights obsolete. Music as a stand-alone product is changing – music will be just one of the required multi-media components. Websites that cater to the multi-media creation and presentation will win the new music game. Search Engine technology still needs improvement to find the great music that hasn't been discovered yet. The Pandora folks have done a good job of giving me a way to discover older published works, but how about the new artists seeking new audiences? MySpace is a crappy place to try to discern quality and proficiency of a new artist. Also, it's sad that obtaining a record company contract is still the best way to get exposure – especially when these new distribution, review, and search tools are available. The record companies have done a great job of slowing innovation, and the rock-and-roll revolution has become the oppressed turned to oppressors (RIAA, et. al.).

  3. John Loken

    Let's assume for the moment that music has indeed become a commodity, like water. Free and ubiquitous.

    We should be so lucky!

    With water I can check into a hotel room in any city, go to any public restroom, turn the spigot on any gardenhose, and my expectation is that the H20 will be free-flowing. Not so with music. With the exception of the iTunes/iPod/iPhone ecosystem, now 25% of U.S. music purchases — none of the services or devices are compatible.

    Really, if music start-ups are a "dog", why can I STILL not load my to my Palm Pre or send it wirelessly to the cute girl at Starbucks? It seems that while the digital revolution has rendered music creation and consumption irrevocably democratized, the music itself is not at all ubiquitous. Rafat points out the numerous hurdles, but at some point rights owners, technologists, legislators and creators are gonna have to sit at the same table and hammer something out. The ability to monetize all types of intellectual property is at stake.

    One of the problems, as Santiago points out, is there's way too many "me too" services getting funded. Really, why is Spotify better than Slacker, and how do they differentiate from iMeem? Focusing on feature enhancements is not a sustainable growth strategy. There's a nerd in Sunnyvale trying to out-innovate you in his garage right now.

    Instead, here are 3 areas in which digital music start-ups could be moving the ball down the field: (1) Perfect microtransaction standards, software and processes so copyright owners can be fairly compensated; (2) Perfect the analytics of music experience and "consumption" in order to improve and better quantify music's value proposition to brand advertisers/sponsors; and (3) Perfect music recommendation software to take into account the myriad behavioral and contextual reasons why we prefer one track over another.

    Whoever writes this clever piece of code will sell for a lot more than $19MM.

  4. Brandon Rice

    It is very important for all of you to remember why people listen to music to begin with. Before the big mamma stores you would go to a specialty store in the town you lived(or at least where I lived at times). Its very important for the artist to make the decisions of where they will allow their music to be. When they respect the ability they have, where they can be where they wanna be, then people will know where to go for specialty music. I could never, even 10 years after the fact, buy Judas Priest or Iron Maiden at a Wal Mart store, but 10 years prior I went to a Indie brick and mortar store and thats where my life changed as a fan. Word of mouth will continue to be EVERYTHING and those Indie's need to cross over to the Digital World, with ATTITUDE. Thats something you wont see from the biggies! They tend to be politically correct, so it all depends on the ARTIST, will they empower themselves and align themselves with the attitude that WAS Rock-n-Roll or will they allow themselves to be placed in a homogenized global funk. I never learned about Metallica in 1985 from the radio, nor from seeing them live, but I sure loved the music and I loved going to the Indie to buy it. This is very very important for everyone to remember and understand. The brick and mortar stores in return need to have a presence locally, globally and digitally in the communities for having ATTITUDE. That is why we gravitate to MUSIC.

  5. @David

    You are correct: having many providers to choose from is (usually) good for the consumer, and it should be attractive for the musicians and the industry as well, assuming that the bigger the pie the better.

    The problem begins, however, when we start considering prices. Should the prices, too, be different, much higher at the small boutique sites? Well… most Web users would say "no." In fact, they say no by downloading illegal copies or going to the big players, such as iTune or Amazon that can offer the same songs for as little as 69 cents.

    But how can a "specialty" music site function and compete with the big distributors at such prices, when the record companies master unit license is often as much as 60 cents per song, for the small guys of course? Because the big ones often get the catalogs for free (see the recent Universal/Virgin deal). And then, you have the mechanical and copyrights agencies charging you 8 t0 10 percent not only of your music revenues but any revenues you might have, including advertising. No wonder many independent start-ups fold down.

  6. Santiago Vega

    Rafat. I mostly agree, but the reason we keep seeing music startups fail is because they continue to build the same product, the same types of platforms, etc… and follow the same unsustainable business model that has already failed.
    This doesn’t mean the music startup as a whole is doomed, it just means it needs to find a new approach.
    At NewBandDaily we think we’ve found one that’s sustainable and very consumer resonant. Check us out, we’ll re-launch in September:

  7. David Polakoff

    Today, I have more options than time to listen to and purchase “old” and “new” music from: broadcast independent, public, and commercial radio streamed on my computer or PDA from anywhere in the world; iTunes and Amazon stores; record label websites; satellite radio; MusicChoice on my television; AOL Music, MySpace, Yahoo! Music, and YouTube;, CD,,,,,,,,;,,,,,,; etc.
    Not one of these platforms is ubiquitous and that’s fine; we are likely not in need of the one stop shop. There are occasions to shop in the department store of the mall; and the times to visit its specialty shops.

    This is all great for me, as a consumer. As a media strategist, the niche sites will have a small but loyal following; the 800 pound gorillas will be…the 800 pound gorillas.

    – Dave
    "Listening To You, I Get the Music"

  8. Juan Cross

    Sure seems to me that most of these music start-ups continue to make the same mistakes as the one's you mentioned. The end result is no sustainability to go on for the long term.

    Why compete with those guys and not just focus on the bands/artists?

  9. We ( are building a new (we think!) model for playing and selling music online, got some positive responses from both the copyright agents and some record companies, but the market is so over-regulated and divided by different professional and national interests that it has been extremely difficult to even start, not to say make and sustain some profit.

    The huge up-front fees and multiple licensing required to build a catalog of tunes to offer online is the major barrier, even for a relatively large company.

  10. Vijay Fernando

    Have been in the music start up for last 3 years, please note still in start up stage even though the company is 3 year old! That will say it all, the points mentioned by you are practical experiences of us in the last 3 years. That too in a dis-organized music market like India.

    Here music labels and regulatory bodies just give a paper agreement when you give them the money (which is 90 times higher what the US guys get as Minimum guarantees) but you have to run around to buy/procure the content you have licenses for! Surprising isn't it!!!! Plus zillions of pirates making a merry since none comes after them from India!

    On top of all this we have to make money to break even bla bla bla, where Indian ad market (digital) is still in nascent stages.

    Just wanted to give away my cent of information.
    our start up's web address:

    Vijay Fernando

  11. Daniel Tickell

    It depends if they interact with tv material or not. Its a creative new business model in here and it only rewards audience. How are they to stand out?

    I feel that in a few years we will have a crazy fusion of music, re-edited tv clips and advertising sloshed into a crazy unmissable mix. People will be able to interact with the music and edit stuff to it and have it randomly edited.

    Sameness, in this field, has no shelf life.

  12. Adam Wexler

    Hey Rafat,

    "I think user communities will coalesce around artists, and not central services, which also weakens the argument for discovery/recommendation/community startups"

    We tend to agree that individual artists will (once again) become the focal point. That's why we created a discovery platform ( where each artist is separated to attract their own fans to rank their favorite songs. It's in Private Alpha at the moment, but let me know if you want to take an early peak.