Music licensing may very well be keeping innovators away

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Issue Date: 
Dec 7 2012 - 12:10pm

From Issue:

All Things D's Peter Kakfa wrote last week, "Question to the people putting money into streaming music start-ups in 2012: What are you thinking?"

Given today's top story in RAIN, this seemed like a good time to circle back around to this story, a tech VC's recent testimony on Capitol Hill, and an rebuttal from former exec Matthew Hawn in GigaOm.

Kafka, like Fred Wilson, points out the problem with "market caps" and real royalty costs:

"Yes, public investors value Pandora at something like $1.4 billion. And private investors think Spotify is worth at least $3 billion... But even those guys are in a precarious position, because they’ve yet to demonstrate that they can afford the cost of music they’re either selling or giving away. And they’re competing with the likes of Apple and Microsoft, which can afford to lose money on this stuff because they think it can help their real businesses."

He then points back to tech VC David Pakman's testimony from the recent House Judiciary subcommitte hearing on the Internet Radio Fairness Act. "Pakman used to run a digital music company himself and, like nearly every single person who leaves digital music, he has vowed to never go back until the licensing climate changes.

'Although we have met many great entrepreneurs with great product ideas, we have resisted investing in digital music largely for one reason — the complications and conditions of the state of music licensing.'"

Hawn (the former guy) says Kafka and Pakman are focusing too much on companies that rely on publishing/performance rights for streaming and downloading. He argues there's lots of room for innovative music start-ups that focus on other areas, like live music, promotion and discovery, and B2B services.

He suggests start-ups reinvent spaces like creating a better marketplace for licensing of music to TV, games, advertising and film; or becoming the Threadless or Etsy of band merchandising.

Interestingly, he writes: "The accounting system that underlies the publishing and performance rights is one of the most rotten and complicated things about the industry. It’s only getting worse as are more digital products and services are created... A music start-up built on transparency, great analytics and paying artists faster and more fairly would be the most disruptive music business ever."

So, where they all seem to agree is: don't start or invest in a company that relies on licensing recorded music at a reasonable rate.

Read Kafka here, Pakman here, and Hawn here.


Spotify Vs Pandora

So between Pandora and Spotify, which one is more valuable? What about 10 years to come Charlotte

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"Where they all seem to agree

"Where they all seem to agree is: don't start or invest in a company that relies on licensing recorded music at a reasonable rate."

And that's where artists are poised to get hurt the most. Doesn't matter what the royalty rate is if no one is paying. Misguided demands risk driving companies out of business and innovators/VCs out of the industry.

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