Are Advances Hurting Digital Music?
-- Are the advances paid to rights owners by music startups hurting digital music or limiting rights owners' exposure? One view of advances is the one espoused by Larry Marcus of Walden Venture Capital.
"I think they're all thinking, 'how do I innovate without going directly to the licenses out of the gate,' because it seems kind of insurmountable," he said at SF Music Tech panel, according to a transcription at Digital Music News.
Marcus suggested labels take an equity stake in a startup, rather than exact advances, in order to ease startups' financial burden. (He said the same thing at SF Music Tech in December 2010.) Angel investor Ron Conway proposed the same concept at Billboard's FutureSound conference in November.
But rights owners see advances as a way to limit their financial risk. Responding to Marcus, Universal Music Group executive VP of business development & affairs David Ring said the existence of advances said, "It is not as you suggest as something that's going to be unreasonable, outrageous or unfair, or earth-shattering."
As an example, Ring said NetRadio owed $2 million in royalties when it went out of business because it hadn't collected revenue on the activity that generated the royalties. "So if you're funding a company that doesn't have any revenue model, and they can't afford to pay point-zero-zero-zero-zero-zero-one-cents per play, that's not the record industry's or the artist's or the writer's fault," Ring said.
Of course, there are many other reasons why an entrepreneur might not innovate in music. One is the limited profit potential of digital music. The cost of digital content is linear. This means expenses will increase at the same rate as revenue, putting out of reach the high gross margins often seen in information technology. Failed startups are a dime a dozen, but they seem especially common in music.
Another reason is the state of copyright in music. If it's confusing to people within the music industry, just imagine how it looks to outsiders. Whether or not rights owners demand large advances, digital entrepreneurs have others ways to make a buck that involves fewer headaches and less uncertainty.
But are advances really "insurmountable," as Marcus put it? There's no doubt they can raise the hurdle for entering digital music. But raising that capital certainly isn't impossible. Spotify, Rdio, Mog, Deezer and Beyond Oblivion are among the subscription services that surpassed that hurdle in recent years.
This begs a question: Do rights owners need to maximize the number of services licensing their content, or do they need to set the bar just high enough so that only the most serious entrepreneur with the best track record will start a music service?
The bar is high enough that first-time entrepreneurs could find it difficult to raise enough capital to launch a music service. From Rdio and Spotify to Lala, digital music has frequently been a second or third act for previously successful entrepreneurs. Launching a subscription service out of your garage just isn't possible. Numerous startups have skirted around the high financial barriers to entry by operating pure-play Internet radio services that don't require them to negotiate licenses. But the biggest revenue opportunities are in downloads and subscriptions -- and those require negotiated licenses.
Giving rights owners a stake in digital startups would, as Marcus noted, align their interests with those of startup. The problem is that labels and publishers weren't built for this role. Venture capital firms specialize in locating, funding and nurturing business opportunities. Labels do this with recording artists. Publishers do this with songwriters. If each party goes with its strengths, venture capital will finance startups and rights owners will license their content to startups. Besides, rights owners could stand to have less, not more, risk in their portfolios.
The venture capital model doesn't look so broken that rights owners need to assume startup risk or venture outside of their core competencies. But if comments by Marcus and Conway are signs that venture capital firms are losing interest in music, rights owners will need to start thinking of ways to regain their enthusiasm. Without venture capital funding, entrepreneurs won't have the incentive to launch the next-generation music services. Without entrepreneurs to build those next-generation music services, digital revenues won't have the growth that people in the music business all but take for granted will one day materialize.
( Digital Music News)
Roku's Improved TV Music Listening Experience
-- Roku users who also subscribe to Rdio (I'm not sure exactly how much those two groups overlap) now get an improved experience of listening to music through their TV. An update to Rdio's Roku app makes it much easier to view your online music collection and playlists. The music collection layout, with its rows of album art and ability to view by artist, album or song, is especially improved. One small problem with the collection view: I found the only way to exit the screen is to exit the app entirely and then re-enter Rdio. It's a small problem that will most likely be remedied soon.
( Rdio blog)
Is Community Ownership The Future of Music Retail?
-- Could the future of music retail involve community ownership? It's one interesting option being considered by independent bookstore Kepler's 2020 in Menlo Park, Calif., which currently has both a non-profit arts and lectures arm and a profitable bookstore.
Praveen Madar calls his business model "a non-profit organization stuck inside a for-profit company" and is considering changing into a community-owned and operated store. "It's about deeper, more engaged contact with your shareholders and knowing what they're looking for," he said.
The bookstore has already adopted an innovative approach to deal with survive in the digital age. Its "Literary Circle" membership program, which Kepler calls a "very important source of revenue," costs $50 a year for basic membership and up to $2,500 a year for "platinum" memberships. The rewards program supports local schools and non-profits while helping support the bookstore, too. All members get a $10 gift card for every $100 spent and invitations to members-only events.