-- It's ironic that Warner Music Group now gets 25% of its
recorded music digital revenue from some of services that were
supposedly off limits to venture capital. The company announced in
its earnings call it gets a quarter of its digital revenue from
subscription services and on-demand video services in addition to
webcasters like Pandora.
Streaming (and
download) services that require licenses are supposed to be a black
hole for venture capital. "You're going to see most of the funding
for digital music go away," Venrock partner David Pakman predicted at the Billboard Music and Money Symposium
in March 2009. Plenty of other venture capitalists share Pakman's
sentiment that digital music just isn't a good investment. Are they
right?
There's no doubt many investors have
steered clear of this class of company while putting money into
license-free startups. But look at the hundreds of millions of
dollars that have been raised since March 2009 by Spotify, Mog,
Deezer, Rdio, Guvera, FreeAllMusic, Rara.com and Beyond Oblivion.
That's not to mention the money invested by corporations such as
BSkyB in its digital music service, Sky Songs.
They can get money but they rarely deliver. Beats Electronics
acquired Mog for $14 million after receiving roughly $25 million in
funding from a litany of major venture capital firms such as Menlo
Ventures as well as Sony BMG and Universal Music Group. Earlier in
2012, Beyond Oblivion folded before it could even launch ( it was reported that half its $88 million of funding
was contingent on unmet goals). And although terms have not been
disclosed, it seems highly unlikely Best Buy's $121 million
acquisition of music subscription service Napster in 2008 made a
profit when it was sold to Rhapsody late last year. Over time, these
poor returns could be more of a deterrent than licensing and legal
issues.
But it may be a moot point. Download and
on-demand services are increasingly the domain of large retailers,
technology and telecom companies that can afford the upfront costs
and can bear some losses if there are gains elsewhere. Venture
capital firms may have to look elsewhere.
Three additional areas of the music business continue to look good
for investments: radio, ticketing and artist services. Check out the
millions that have recently flowed into ticketing. Ticketfly announced two weeks ago
it raised another $22 million of funding, putting its total at $37
million. Eventbrite hasn't raised any money in 2012, but it raised
$50 million in 2011 and $20 million in 2010. Ticketbiscuit raised an
undisclosed amount in late 2010.
Radio is a
perennially hot area. TuneIn added $16 million to its first round of
$6 million of funding. Miami-based Senzari has raised $3 million
and operates in the U.S., Brazil and Spain; it launched in December.
And, of course, Pandora had a successful public offering in 2011.
Radio services don't require negotiated licenses, so they're more
palatable for investors.
Artist services
companies -- which don't require licenses with rights owners -- are
numerous and well funded. In January, SoundCloud announced $50
million and Moontoast announced $6 million; BandPage (formerly
RootMusic) announced $16 million last August. Crowdfunding platforms
Indiegogo announced $15 million in June -- I wouldn't be surprised
to see more funding in the crowdfunding arena.
The direct-to-fan segment is one to watch, direct-to-fan platform
Nimbit CEO Bob Cramer says. Cramer might be a bit biased, of course,
because audio production technology maker PreSonus acquired Nimbit
earlier this year. The deal was a bit of a rarity -- plenty of
companies get investments, but far fewer take that next step and are
acquired and allow earlier investors to cash out. Neither company
disclosed the terms of the deal. Cramer declined to comment as well.
But he speaks highly of the Nimbit-PreSonus combination and says
the market will go through a lot of competition and consolidation in
the coming years.
"I still think direct-to-fan is in its infancy right now," he tells Billboard.biz.
CD Sales Growing at CD Baby
-- The CD may be considered as good as dead, but CD sales are
growing at distributor CD Baby. The Portland, Ore.-based company
revealed this week that its CD sales are up over the previous year.
"We've been distributing MP3 albums since 2004,"
president Brian Felson said in a statement. "But we're still seeing
robust sales of compact discs in the independent community --
and this year, our CD sales are actually up!"
The
uptick in sales appears to be a result of improved distribution. CD
Baby attributes its CD success to its recently formed partnership
with distribution giant Alliance Entertainment; partnerships with
resellers in Argentina, Brazil and Taiwan; and more accurate
listings. CD Baby noted that its increase is only in the "low
thousands of units," but an increase is still an increase.
The broader trend for CD sales is not so rosy. U.S. CD sales
were down 13% through Aug. 5, according to Nielsen SoundScan. Warner
Music Group's global physical revenue is down 12% in the nine
months ending June 30 (from the company's Aug. 9 earnings release).
I figured CD Baby isn't the only place where CD
sales are on the upswing, so I moseyed over to Bandcamp. I counted
155 new CDs for sale at Bandcamp this week alone from independent
artists. It stands to reason so many independent artists wouldn't
be manufacturing CDs if there weren't a market for them, right?
But Bandcamp CEO Ethan Diamond couldn't say with certainty
whether or not Bandcamp CDs are following a trajectory similar to
that of CD Baby. And while he said physical sales continue to
increase, this could be a result of organic growth or new features such as the merchandise section added Aug. 1.
On a side note, Diamond sent me a link to an Aug. 3 post at the
Atlantic with a breakdown of revenue sources of musician Zoe
Keating. Diamond sent me the link because Bandcamp was the
second-biggest slice on the pie chart: 30% of Keating's $84,385.86
earned from Oct. 2011 to Feb. 2012. iTunes made up a majority of her
revenue (56%) while physical (10%) and digital (3%) sales at Amazon
were the only other major tranches. Streaming services, Internet
radio and terrestrial radio provided just a small bit of revenue.
The Atlantic summed it up this way: "Keating made 97% of her revenue
through people just buying her music, whether through physical
sales or digital download." 
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