In a post entitled “The Dream Is Over: Music Labels Have Killed Their Digital Future” former music-startup founder Wayne Rosso makes the case that the music industry is incompatible with startups.
The hope of pioneering the music industry’s most profound transformation, that inspired entrepreneurs over 10 years ago, has finally been snuffed out by the very people who would have profited the most—the music industry.
The table is now set. There will be no new players of significance to enter the business. Investors don’t want to entertain the remotest possibility of funding any start-up that deals with music, no matter how clever and innovative. As one major media venture firm told me a few months ago, they’re tired of writing cheques for big advances to record labels. Not to mention the huge legal fees that start-ups have to spend in order to get licensed, a process that takes at least a year (for no apparent reason, I might add).
A wise man once told me the trick to career success is realizing that all business is sales.
Whether you’re a startup pitching to VCs or an Information Manager pitching to the CFO of your company that truism remains constant. Because that’s how the world is structured.
If someone has a good thing they’ll instinctively want more of it. At the same time some people have resources (money, song rights, etc…) at their disposal and resources are a good thing. So every person with resources wants to increase the size of those resources.
Which in turn means there will always be opportunities in music based technology if the founder can sell their idea to the record execs.
But that’s the key. You have to convince them you’ll actually increase their resources. Most music startups come in to the industry with an attitude that lessens the value of the music industry’s resources (Music should be free for example). That usually ends the discussion before it’s begun. Because no one is going to trust someone to increase the value of their resources if that person doesn’t seem to understand its current value.
That’s why Apple succeeded. Because Apple came in and took the resources that were being traded for free (songs) and attached a price to it. Apple restored value to the resource and that’s why the music industry bows to Steve Jobs today.
Which brings me back to my core point. Business is sales and sales is about giving your customer what they want. For Recording Executives that means proving you can make money off their music. Do that convincingly and your VC won’t have to write a big check up front.
Addressing the Counter Argument: The counter argument to my above point usually involves something like “the record execs are unreasonable and would never waive their fees.” I’ll tell you right now that isn’t true. I spent the better part of 2009 going to parties with these people and I never met an executive from a media company who didn’t want to deal with startups. If they think you’ll make them money they’ll make the deal. Just don’t expect it to be easy because these are people who are used to intense negotiations with talent.
Look at Pandora. They almost died making the deal but it did get made.