Business Matters: Investor Enthusiasm for the Cloud Continues as Beyond Oblivion Secures $77 Million Funding
Business Matters: Investor Enthusiasm for the Cloud Continues as Beyond Oblivion Secures $77 Million Funding

Beyond Oblivion Secures $77 Million Funding
-- Investments in new digital music companies are surprisingly large and frequent these days. The latest example is Beyond Obilvion. The most anticipated cloud-based music service you've never heard of has secured an additional $77 million in funding from Wellcome Trust, a global charitable foundation, and previous investor News Corp. (yes, that News Corp.). The startup also has two earlier investors, Allen & Company and Intertrust Technologies.

This latest funding will be used to secure content licenses, build a global infrastructure and market its commercial launch. The New York-based company will first launch in Indonesia and Malaysia, according to a spokesperson.

"The situation of the company is that we have required quite a lot of capital to move forward," CEO Adam Kidron said at the Digital Music Forum East. "Luckily the capital markets have freed up a little bit and there is the kind of capital available now to do things that were considered to be quite disruptive that now are probably considered to be essential at this current point."

Next to the $100 million Spotify is reported to have raised last month, this $77 million funding is the largest in recent memory for a music startup. Ad-supported download site Guvera announced $20 million in venture capital funding in January 2010. Cloud-based music service Rdio announced a funding round of $17.5 million in January.

What does Beyond Oblivion do? Here's how the latest press release explains it: "Beyond Oblivion enables high-quality music files to be downloaded and played from a vast cloud-based library and shared freely between licensed devices such as music players, mobile phones, computers and pads. Acknowledging that the value of a digital music file is in how many times it is played and not the initial download, Beyond reports play-count to rights holders who are paid a royalty every time their music is played - whether or not the file was legally or illegally downloaded, ripped or shared."

However, the Beyond Oblivion business model is different. The company sells its service to hardware manufacturers. So, for example, an MP3 player could come with the Beyond Oblivion music service with the price baked right into the cost of the device. The license allows users to share music with other Beyond Oblivion devices. "We believe the download and the ownership should be free," Kidron explained at the Digital Music Forum East 2011. "And what people should pay for, and what people would be interested in paying for, and where people see value, is in usage."

Is Spotify Misleading By Using "Active" Users In Calculating Its Up-sell Ratio?
-- What percent of Spotify users are paying customers? It's more than a technical question. Labels critical of the business model complain about the small percentage of consumers who are converted into paying customers. In order for a freeloader-filled service to win over skeptical content owners, it could stand to add more paying customers.

Or maybe it can just change the math. Upon the announcement that it had surpassed 1 million (paying) subscribers, CEO Daniel Ek told the Financial Times that 15% of "active" users were paying customers. That would put Spotify's active user base at about 6.7 million. But Spotify has publicly said it has 10 million users. That number is months old, meaning there are well north of 10 million by now. If 11 million people have registered to use Spotify, then the ratio of users to paying subscribers -- let's call it the up-sell ratio -- would be about 9%. If it has 1 million paying subscribers and 12 million registered users, its up-sell ratio would be just above 8%. You can see the number falling depending on the number used in the denominator.

Is Spotify being misleading by using "active" users in calculating its up-sell ratio? No, not really. First of all, Spotify is predictably putting a positive spin on its own statistics. It's to be expected and is a bad thing only when it's egregious, false or misleading. Second, and more importantly, calculating the upsell ratio with active users tells a more accurate story. Users who registered and fled are probably so low in value that they should not be added to the measurements. After all, the people who tried out Spotify and didn't return are probably not going to become paying subscribers any time soon. They may be better targets for a free, ad-supported Internet radio service. And don't forget about all the Americans who register while in Europe, return home and can only use it for the next three months. Their participation increases the number of registered users and, eventually, the number of inactive users.
(Financial Times, paidContent)

Ticketbiscuit Inks Deal With the Valarium and Cider House
-- The ticketing wars continue -- even on relatively small but important battlefields. In its latest deal, Ticketbiscuit has signed a deal with the Valarium and Cider House in Knoxville, Tenn.

Founded in 2001 and based in Birmingham, Ala., Ticketbiscuit provides ticketing for 500 clients and 1,500 venues in the U.S. and Canada. It has a strong presence in the Southeast portion of the United States. In fact, Valarium and Cider House owner Gary Mitchell cited the company's significant presence in the Southeast music scene." The company raised an undisclosed amount of capital funding from C&G Partners in December 2010.
(TicketBiscuit blog)

The Financials of a Country Label

-- For a perspective on the financials of a country label, consider these numbers from a presentation at Country Radio Seminar as reported by Tom Roland in the latest Billboard Country Update. Chuck Flood of business management firm Flood, Bumstead, McCready & McCarthey, and Ken Robold, executive VP at Universal Music Nashville, gave the presentation.

"An artist with two or three hits might typically generate $1.185 million in annual revenue, Flood explained, with much of that income derived from concert fees, $60,000 merchandise sales and a royalty advance of $25,000. Commissions and tour costs deplete the bulk of that revenue, and the artist would likely have a pretax income of $104,000. Some $75,000 of that comes from tour support -- money the record company shells out to keep the act in front of potential fans. Thus, without the label's backing, a new artist might clear a mere $29,000 in a year…"

"The labels meanwhile are operating on weak footing, too. A record company usually needs to sell 544,000 copies of a headline-level artist's album just to break even, Robold noted. A 99-cent digital track sale on iTunes brings 43 cents of per-unit profit, but CD sales are down a whopping 70% since 2000 and online sales are not filling the gap. It takes nine track sales to match the profit value of one legally downloaded album, and fans simply haven't bought enough online music to make up the difference."
(Billboard Country Update)