Late Last week in San Francisco, the
MusicTech Summit sought to bring together music and
the tech
industry. This panel asked what VC's think about the digital music business. From
the panelists:
- Most music 2.0 companies can't generate a high enough rate of return to satisfy venture funds. However, that doesn't mean they can't be viable, profitable businesses. Entrepreneurs in the digital music space are more likely to find funding from angel investors or in some cases smaller VC funds.
- Funds are typically hesitant to invest in music 2.0 companies because 1) there is no money in selling music, and 2) if the company hasn't properly licensed music from l
- labels, the risk of expensive litigation down the road is very high.
- Generating traffic for your music 2.0 website is great, but only if it's the right kind of traffic. It's essential for businesses to understand who their users are, and why they use the site. If 80% of your users are overseas, for example, advertisers won't be very interested. If you've built an audience around free music, what makes you think your users will stick around when you stop giving away music?
- There is currently an oversupply of entrepreneurs in the digital music space.
- There is no future in the business of owning intellectual property. Businesses must shift from selling music to consumers to selling services to musicians.
- Recorded music is a static product and therefore worth little in and of itself. Value is created by using music to accessorize or enhance other products.
- From an investor's perspective, selling mobile music is unattractive because margins are extremely low - carrier fees, label licensing fees, advertising costs and operating expenses leave very little profit. Mobile sales will not save the music industry.
