2009 was a crap year for start-ups. The financial crisis’ aftermath caused budgets to shrink, nearly everywhere but Silicon Valley. Not at least cause a large fraction of the US VC firms is present there. VentureSource reported an increase of 30 to 40% of invested VC in 2009. But where did that money go?
For music start-ups the future of VC investments didn‘t seem to look to bright. In march, on a Billboard Music and Money Symposium David Pakman of Venrock stated that music is really not a good field for investment and one can expect that the money will dry up in this sector. He sees no innovative power and ideas on how to earn money with music, a business full of legal pitfalls. The complexity and inconsistency of the copyright avoids a rush he said. Contrary to his statements MIDEM is organising panels and ‘Meet the Speakers‘sessions, where venture capitalists and consultants will discuss potential benefits to the music industry in soliciting financing from such investors.
After a decade of well rehearsed business models, the digital landscape looks well trimmed: Apple‘s iTunes dominates the scenery – even on conservative estimates their revenue should equal 400 million USD in 2009. On the other side, it is getting more and more obvious, that ad-based services will not even pay the streaming licenses (ouch, Gerd Leonhard is not going to like this).
According to Indiemusictech.com approx. 330 million USD were invested, which is a rough estimate, as quite some funds are kept under wraps. But anyhow this would mean a surprising increase from 2008‘s 260 million.
One of the largest investment in digital music last year are probably the 50 million gift Spotify received as an ad-on in August. Bottom line is, that selling music via flat rate models was a gap in Europe not yet overstaffed by services like e.g. Rhapsody or mobile operators. And Apple‘s step into this sector is yet to happen – but becoming more likely to happen after their acquisition of LaLa.
A second focus of investment was streaming services like Skype founders new start-up RDIO, or Pandora or Ustream. But also traditional radio concepts like Slacker, goom, Rodionomy, streaming-oriented social network sites like Deezer, artist focuses services like soundcloud or even Imeem, that was sold for a penny to MySPace (which could indicate an end of the streaming hype) could benefit from investments.
The remaining funds were poured out to DIY artist marketing (Nimbit, Slicethepie, Mymajorcompany), popularity analysis (NextBigSound, Band Metrics), Social Networks (Loudcrowd, MOG, OurStage, Buzznet), Ticketing (ShowClix, FanSnap, BandsInTown) and a few exotics.
Surprisingly, however, little has been invested in companies that appear in music key markets (only RightsFlow – as far as I know). Maybe it‘s Apple‘s ubermighty power or market saturation paralyzing new ideas – Amie Street and its variable pricing model or the purchase of HMV via 7Digital were notable exceptions.
Even after more than a decade of online music, future music markets/businesses are hard to predict, some areas however seem promising. In-App-selling opportunities from Apple’s and several other mobile app stores open new business models.
A further convergence of many gadgets towards universal media-tools might open new markets, and even the mother of social networks, Facebook has not been cracked by any music sales platform yet. So there is still work to be done for a slowly recovering willingness to invest in digital music.
(thanks bleed for ths one)