imeem founder says music startups are doomed

In a talk this week, Dalton Caldwell, founder of now-defunct music startup imeem, forecast a grim future for those who would follow in his tracks.

According to Mashable:

Yesterday at YCombinator’s Startup School at Stanford University, the founder of the now-defunct music sharing startup Imeem laid out a very grim assessment of the future of music startups. In his words, “every time a founder does a music startup, a likely more successful startup dies.”

Dalton Caldwell founded Imeem in 2003 with the goal of reinventing the music industry through free, advertising-supported streaming music. At its peak, Imeem had 95 employees, $24 million in yearly revenue and was one of the 100 most popular sites on the web.

In November 2009, Imeem was acquired by MySpace for a paltry $1 million. News Corp. shut Imeem down a month later.

Licensing issues seem to be at the heart of Caldwell’s projections. Says VentureBeat:

There seemed to be some common threads. For one thing, each licensing deal with the music labels tends to include a minimum quarterly payment that startups have to pay, even if their revenue doesn’t meet expectations. Also, in most models, Caldwell pointed out, the costs are high enough and the margins are low enough that you’d have to sell an unrealistically high amount of music to break even. Plus, most of these offering types are already saturated with competition. Finally, even if you want to sell your startup to another company, there’s a big problem: In every licensing deal Caldwell said he has seen, the record label has the right to renegotiate or pull out of the deal if you get acquired.

Wired UK examined some of the possible solutions to the problems faced by music startups in their assessment of the talk:

Caldwell admitted that this isn’t the result of record company executives trying to do over music startups. Merely that they’re facing a dramatic shrinking in their business, and the answer is to push for the best deal in every possible negotiation. As they still hold the keys to the catalogue that the startups need, that deal can be very good in the short term — but it’s simply not sustainable longer-term.

Solutions exist, but they’re not exactly close to reality. Governments need to impose an international licensing framework on record companies that allows music to be licensed across the world at a rate that’s sustainable and affordable for smaller companies. That’s the holy grail.

Then APIs need to be created, either by the record companies or by third parties such as the collecting societies, which can deliver music reliably and efficiently, as well as recording detailed metrics on which tracks are popular, so that cash can be distributed accurately. This is what Imeem tried, and failed, to do. Currently, many believe that bigger artists are overpaid by collecting societies, whereas smaller acts lose out.

If both of those things can be accomplished, then the record companies will begin to see a huge, dramatic improvement in their finances, thanks to the hundreds of licensing deals pouring in buckets of cash from around the world.

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