Why So Many Music Startups Fail And What We Can Do About It


image from encrypted-tbn1.gstatic.comWhy do so many music startups fail, and can we do anything to prevent it? Here we look at some alarming evidence demonstrating the incredibly high rate of failure in the music startup world, and if the end of innovation is nigh.

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Digital Deficiency: Why Music Startups Are Failing And What We Can Do About It

Guest bost by Andrés Sánchez, CEO and founder of Tribes

Just a few weeks ago, at the BBC Music Conference in London, this was the simple but rather scary proposition up for discussion on the final panel session. The evidence was damning: After showing a slide of the hottest music start-ups five years ago, the presenter, the mighty Rory Cellan-Jones, moved on to another slide showing that just a handful remained. Among the dearly departed were This Is My Jam, SoundDrop, Bloom.fm, Rdio, Bob.fm, Shuffler.fm and, of course the one that suffered perhaps the hardest and noisiest fall, Crowdmix.

1The slides raised a slew of questions, above all, why do music startups fail so frequently? This topic has exercised some prominent music figures of late, including Andy Edwards in his Music Business Worldwide piece “Sympathy for the devil: why do so few music startups succeed”. More robustly, Jim McDermott contended that “Most Music Tech Startups Didn’t Know Shit About How Labels Worked”, which was itself a response to David Pakman, a VC at Venrock, who wrote “The Music Industry Buried More Than 150 Startups—Now They are Left to Dance with the Giants”.

“there is no industry standard for agreements

between labels, publishers and artists”

Whatever the disputes, there seems to be general agreement about the complexity of the industry and the issues with copyright and rights holders (If blockchain has any chance to change this may be subject of a full conference). Frustratingly, there is no industry standard for agreements between labels, publishers and artists. Deals are struck on a case-by-case basis and every few years, changing trends make things more complicated still.  

In the industry’s “golden age”(the ‘70s and ‘80s), musicians’ careers were almost entirely managed by the labels. Though the musicians themselves only had to worry about recording, playing and touring, the flip side was that they had to surrender much of their creative freedom and, frequently, the rights to their creations.

In more recent years, musicians’ arrangements have become more varied than ever before. On one extreme, some acts opt for 360 degree contracts that even include everything to do with touring. On the other, independently minded acts are handling almost the entire process, whether it’s retaining rights to all their work or managing their own marketing. This blizzard of arrangements makes it nigh-on impossible for an innovative start-up to access a legal catalogue of music (unless it has very deep pockets). And even those that can arrange a deal to get access face formidable obstacles to turning a profit. That a company as vast as Spotify is still making losses of $194 million, despite revenues topping $2 billion, shows the scale of the challenge.

So if a lot of these former startup stars are no longer with us, does that mean we’ve entered a period of consolidation? It would certainly appear so. Music streaming is increasingly coalescing around three or four titans, whose actions have largely been spurred by that plucky Swedish startup that took the music world by storm. (How did Spotify do it? We can only marvel at their creativity, passion and relentless determination.)

But with these giants battling it out overhead, what does that mean for the nimble new guys down below? Is there any room for innovative approaches?

Can small companies find a path to growth in this market?

Whatever our conference presenters said, there are definite grounds for optimism. One of the world’s top accelerators, Techstars recently began a specalised music programme with the firm belief that there are still big opportunities in the sector. Having learned some hard lessons, a new breed of music startups is emerging, including TechCrunch Disrupt winners Juckdeck  or Superphone run by musician and visionary Ryan Leslie. Some of the more established names are continuing to progress, too, including Mixcloud, Shazam, Boiler Room, 8tracks, who recently raised over $2.5 million through equity-crowdfunding, and the incredible Kobalt. Though not full-on music startups as such, music-related social apps such as Music.ly or Dubsmash have also shown the dynamism on show in the sector.

Bottom line: music startups can still thrill and succeed but, as Mr McDermott so eloquently suggested, they have to know the industry very well and understand how it works. They also have to do proper market research to spot opportunities and gaps to genuinely improve fans’ experience of music. Our research and experience has led us to conclude that a key way forward is to create propositions that complement – rather than compete with – music streaming services. Already, music streaming is becoming fairly standardized, with all the industry giants adopting a similar approach. It is pretty much impossible to compete with the likes of Spotify for music streaming, or with Google or Amazon for AI, so music startups need to rely on ever more creativity and finding answers to some key questions.

“How can we enrich fans’ experience of the music they love?”

How can we create a closer relationship between fans and artists? Can we provide data and insights that no streaming service can generate? How can gamification be introduced to music? How can artists and labels earn more from their work rather than simply relying on some concert tickets and often modest levels of royalties?

Ultimately, music relies on people, on the music lover who consumes it. So the key question has to be, how can we enrich fans’ experience of the music they love?

After over ten years in music and four years in music-tech, with products that have evolved from a live-streaming platform (Living Indie) to a music-streaming service (humm), we’ve learned huge amounts about the sector – and come up with our own answer to these questions: Tribes, a messaging app aimed squarely at music, curated by and for music fans, artists and their labels.

So to return to the original question, no, we’re not seeing the end of innovation in digital music. As ever, it boils down to asking the right questions – and, as we’re convinced we’ve done with Tribes, coming up with the right answers.

Andrés Sánchez is CEO and founder of Tribes, humm and Living Indie.