Hot social music startup Turntable.fm has raised $7.5 million from Union Square Ventures, according to a report at Betabeat. The deal values the company at $37.5 million.
Reports of funding - the exact dollar amount and valuation reported today - had already surfaced in early July. But co-founder Seth Goldstein denied the rumors and said the company had not closed any new financing. Beatbeat's latest report cites "multiple sources," however. And MediaMemo claims the deal has been done for about a month.
Union Square Ventures has invested in a number of entertainment-related startups but until now has steered clear from companies that sell or stream licensed recorded music. Its closest investment to Turntable.fm is cloud-based music sharing service SoundCloud. Union Square has also invested in Twitter (used by most musicians), online game company Zynga (which is involved in music to a small degree), Internet advertising network Targetspot (which supplies ads to Internet radio services), location-based app Foursquare and project financing site Kickstarter (which is used by many musicians to raise money for projects), among many others.
A $37.5 million valuation may seem low for such an engaging, popular music service with great potential. The site currently has about 23,000 daily average users and 360,000 monthly active users, according to AppData. It has obvious potential for advertisers and sponsors. And given the amount of attention it has received from tech and music blogs, it has a core group of fans that love the service. All this has been achieved solely through word of mouth.
But Turntable.fm's legal uncertainties are a key factor that reins in its valuation. The site is so innovative that it doesn't fall neatly into one of the two categories given to streaming audio services: on-demand services and non-interactive services. If the service can operate as a non-interactive webcaster, it will incur royalty obligations that can be covered by advertising and sponsorships. But rights holders might argue that some of the streams - the songs chosen by and streamed to DJs - qualify as on-demand streams. And once an audio stream is deemed to be on-demand, a music service takes on an entirely different (and more burdensome) cost structure.
Other questions remain. Even if Turntable.fm is allowed to operate as a non-interactive webcaster, the imposition of advertisements and inclusion of sponsors could change how frequently listeners visit, how long they stick around and how they perceive the site. All three variables could impact expected revenue and affect the company's valuation.