Why This Venture Capitalist Is Optimistic About the Music Business (Guest Post from Peter D. Csathy)
Hank Osuna
Peter D. Csathy is CEO of Manatt Digital Media Ventures.

Despite talk of doom and gloom for the music business, the case for optimism -- and the prospects for massive growth in the overall music ecosystem -- is strong. Fairly straightforward “traditional” business models (primarily retail) have been disrupted, but a new, multipronged “community”-based model -- with myriad new revenue streams fueled by social media and technology -- is poised to significantly increase the overall pie. This is the opportunity I see as an early-stage investor in digital media startups, particularly those that fuel deep engagement, connection and community.

Universal broadband and the near-ubiquity of smartphones give musicians -- for the first time -- the potential opportunity to reach virtually anyone, anytime and anywhere, and build communities of like-minded passionate fans around them. This unprecedented reach fuels deeper ongoing engagement and new ways to monetize those connected fans every step of the way.

This is what I mean by a new community-based business model, the fundamental goal of which is to maximize the artist’s reach and level of engagement -- to open as many doors as possible for consumers to actively participate in those communities. The more legitimate entry points, the better, because that means more opportunities to monetize and more revenue streams.

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And that’s the point. No single revenue stream in the multipronged community-based model may be as significant as any single traditional revenue line, but taken together, these new multiple revenue streams have the potential to far surpass them.

As an investor in this context, here are a few trends I see:

  1. Holistic, multifaceted online music services that tie together -- and monetize -- many of these individual elements (social, streaming, downloads, concert tickets, merchandise). New services by established brands like Beats (Beats Music), as well as startups like New York-based Rukkus, are prime examples.
  2. Direct artist-to-fan and fan-to-fan engagement made possible by new music communities that promote and monetize entirely new experiences and revenue streams. Established social tools like Twitter and Instagram keep artists top of mind by offering unique (and uniquely promotional) slices of life, while Los Angeles-based Stageit and New York-based Concert Window offer a live, one-to-one connection and fan financial contribution.
  3. The continuing inexorable rise of music festivals fueled by social media and deeper technology-driven engagement and experiential immersion -- and the offline/online connection. Established players like Superfly -- producer of Bonnaroo and Outside Lands -- increasingly leverage social to keep those brands and communities alive throughout the year. Examples include established players like Vevo that increasingly bring live, offline experiences (festivals) online, as well as startups like Qello, which offers an on-demand vault of vintage festivals.

Younger players in the music ecosystem inherently understand that a multipronged community-based business model of fan expansion and direct ongoing engagement is the new normal. They have grown up immersed in social media and these new transformational technologies. Many traditional players, on the other hand, are understandably challenged by this shift. But new investment opportunities exist here, too.

Music’s unique power to effect positive social change is also a positive for me as both an investor and consumer. Never before has the mobilizing force of music been as strong as a result of the reach that flows from mobile and social media. Generations Y and Z see the world differently. The concept of “making a difference” matters to them. Social impact and profit need not be mutually exclusive. Music’s new community-based model enables a new world of “double bottom line” companies fueled by passion. That means more opportunities to monetize, and more opportunities for investors.