With digital service providers having a hard time making money and new start-ups still having difficulty affording licensing, venture capital firms may be on the verge of pulling back from investing in the music space. That was one of the conclusions that emerged at the "Investing in Online Music Startups" at the Billboard Music & Money Symposium, held at the St. Regis Hotel in New York today.

Venrock partner David Pakman, who previously ran eMusic, said he counts 109 music digital start-ups and added he thinks fewer than five have produced returns, which makes this are not very fertile territory for venture capital firms.

The challenge is that there is little to no margin in selling music digitally and the cost of obtaining music for an ad-based model is too high, Pakman added. "You can't spend 80% - 90% of revenues on licensing music for a site."

It used to be that start-ups didn't get funding without the proper licensing. Then YouTube changed the model because it started without the proper licensing and then most of the labels settled with them, said Benchmark Capital entrepreneur in residence Dave Goldberg. But, "I think YouTube is the exception."

Goldberg said the labels don't want anybody making money on their back (without mentioning MTV or Apple by name). But he thinks for the industry to be healthy, the labels should have "lots of companies making money" off the label backs.

He said the label mentality has to change from "heads we win, tails you lose" or investors will go away. When that happens the labels' prospects for selling music digitally will be impaired.

Ignition Capital's Richard Tong noted that YouTube is "a lot more than a music site," and suggested that the more viable business model might be one where music is just a small part of the business. "If you just sell music, that's a hard sell, Tong said.

The one-day Billboard Music & Money Symposium is happening today (March 5) at the St. Regis Hotel in New York. For AEG president and CEO Tim Leiweke's keynote Q&A session at the event, click here.

For more on upcoming Billboard events, visit billboardevents.com.