Today I was lucky enough to see the ceremony in Brooklyn to rename Palmetto Playground to Adam Yauch Park. Yauch, better known as MCA of the Beastie Boys, lost his fight with cancer last year. Palmetto Playground, as told by his parents, was where Yauch learned to ride a bicycle in his native Willow Place in Brooklyn, New York. The park is now named after one of Brooklyn’s favorite sons.
In attendance were Adam Horovitz AKA Adrock and Yauch’s parents, who shared their words.
We miss you, MCA. It was because of you, as a kid in the Pacific Northwest listening to License to Ill, who made me want to move to Brooklyn. Now I live where you grew up.
Tomorrow I will be blasting “No Sleep Till Brooklyn” from the bridge in your honor.
The Music Startup Continuum
In addition to working at USV, I spend some time as a co-organizer of a Music Startup Meetup here in NYC. The goal of the group is to bring together people building music startups and to provide them with access to entrepreneurs and music executives who can help them in that process. To date, we’ve hosted 6 meetups over the last 18 months with 305 members. Despite its infrequence, each of the meetups have been rated 4.5 or 5 stars, and I’m proud of that.
Since I’m trying to get back into this blogging thing (and in response to the music startup meetup on Thursday), I thought it would be worthwhile to explain my framework on how I think about music startups from a VC perspective. This framework explains the organization of music startups on the audience-side, in which consumers listen and engage with music.
On the far left of the continuum, you have blogs. On the right side, you have “catalog” services. And in the middle, there is a “radio” section.
The blogosphere is pretty straightforward, but many are surprised that it even exists within this framework. Music blogs are where most of us spend time discovering and listening to new music. However, they are decentralized and almost impossible to monetize. (The caveat being that we’re seeing more and more blogs aggregate along media networks. These are good businesses, if advertising is your thing, but they are rarely venture-backable.)
On the other side of the spectrum are the catalog services we all know and love (kinda): iTunes, Spotify, Rdio, etc. As you can tell, there aren’t many of these. The important thing here is that catalog services require large deals with labels to operate, and as a result, the value in these services are centralized. I expect there to be a “winner-takes-all” effect here, and thus investing early (when valuations are reasonable) can provide tremendous returns. All signs seem to point to iTunes and Spotify taking the crown here with Rdio as a niche alternative. However, you can’t dismiss the possibility of Amazon and Microsoft entering the mix. The larger players have the ability to subsidize the music catalog service as a strategic function of their other business activities.
The middle of the spectrum is where things get interesting. First, you have a slew of internet radio services, including Pandora, Songza, and iheartradio. Unlike catalog services, these don’t necessarily need label support to operate as long as you have a content wholesaler like MediaNet. These businesses are pretty straightforward. There is a cost per stream (as defined by your wholesaler), and to be profitable, you monetize the listener with advertisements. I expect online radio services to play out like terrestrial radio services. There will be big services (the online equivalent of Hot97 and Power 105) with a ton of niche ones. Rather than differentiate on genre, online services will be distinguished on their curation (algorithmic or people-powered), the user experience, and the context in which you listen to it.
Just to the left of radio, I have space for what I call social music services. These are the people-powered discovery services, like ex.fm, HypeMachine, and Turntable, that are predicated on the notion that a music taste graph exists that’s different than just your friends. They are more decentralized than radio and more centralized than blogs. Generally, these services are hard to monetize but the upside can be quite large (with network effects). I can imagine a world in which these social music services are more centralized, perhaps more capitalized, and at that point, this could slide along the continuum towards the right.
Given this framework, I believe there are a limited opportunities to invest in the music startup landscape on the audience-side, but it’s not a lost-cause. A few investment opportunities that come to mind are tools that play into the decentralized nature of blogs (i.e. SoundCloud’s embeddable player), networks that lower the cost of radio streaming, and more centralized social music services.
exfm:
We are excited to announce that our friends over atJolidrive have added Exfm as a new service! If you haven’t checked out Jolidrive, now’s the time. In their own words - ‘Jolidrive unifies all your content from multiple services in one simple and beautiful interface accessible from…
“For peat sake, Boston was founded by the Pilgrims. A people so tough they had to buckle their God damn hats on.” - Steven Colbert
So much love for my hometown!
