Video: Union Square Ventures' Fred Wilson's Full Keynote Q&A at Billboard's FutureSound Conference
Video: Union Square Ventures' Fred Wilson's Full Keynote Q&A at Billboard's FutureSound Conference

wilson Billboard's Bill Werde interviews investor Fred Wilson during the Billboard FutureSound Conference today in San Francisco. (Photo: Arnold Turner)

Investor Fred Wilson ( @fredwilson) loves music but he's still "relatively cautious" about investing in it, he said during his keynote Q&A at Billboard's FutureSound Conference in San Francisco today, citing some of the difficulties with his most high-profile music start-up,

Wilson, who through his firm Union Square Ventures has backed some of the fastest growing start-ups of last decade (including Twitter, FourSquare and Tumblr), said of looking at music investments in general, "I've felt that the desire of both sides of the issue -- on the tech side and music -- to work in partnership wasn't there." He said that more recent negotiations with music companies have been improving.

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During the keynote, which was moderated by Billboard editorial director Bill Werde ( @bwerde), Wilson said the upfront costs for a start-up in the music business are "extremely high relative to almost any other sector I can think of. It takes $5 million to $10 million before you know what you've got."

For example, after early fanfare in the weeks after its launch last year, interest in has tailed off. The site struck licensing deals in the U.S. but has had to shut out international users until licensing deals are completed in other markets.

"They're doing deals market by market to expand around the world. The plan is to build a global, social experience, but it will take three or four years," Wilson said.

fred Fred Wilson contemplates a question during his Q&A at the Billboard FutureSound Conference. (Photo: Arnold Turner)

He said usage of dropped by two-thirds when it cut off usage outside of US.

"The service has never been the same since. That's the kind of stuff that makes being an entrepreneur in the sector difficult."

Despite the mega-billion valuations of some of the companies he has backed, Wilson said it was up to the start-ups -- including those in the music business -- to prove they are worth the high price tags only by generating sufficient cashflow. That can be a difficult task given the large upfront and ongoing licensing costs.

"It's really difficult," he said. "Look at Spotify and the money it has spent and you realize how daunting a task it is."

Online music-streaming service Spotify recently raised another $100 million from investors led by Goldman Sachs, Fidelity Investment and Coca Cola at a valuation of $3 billion, sources said.

"Spotify probably isn't worth $3 billion," Wilson said. "I doubt very much Spotify could sell itself today for $3 billion in cash."

He highlighted Zynga, a company he invested in, as a recent example of markets deciding if a company was worth a given valuation, saying it was worth $10 billion earlier in the year and is today valued at less than $2 billion.

Wilson was also skeptical about Apple's perceived leadership in the digital-music business, pointing out that its primary product, iTunes, is 10 years old.

"I don't see them innovating in music," he said. "They haven't moved from the file model to a streaming model, but they will do that. They're a follower -- not a leader in the category."

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