Making music pay can be a tricky thing. Beats Electronics pulled it off, first by getting high-profile celebrities to use the products and then rolling out a streaming service. (Ultimately, Apple bought the company.) And the demand to keep making money where possible was clear when promoters produced a Tupac Shakur show a few years back, making use of holograms of the rapper.
But the disasters and disappointments have far outweighed the winners. According to a data analysis by David Packman, a venture capitalist at Venrock, 175 digital music companies received VC backing since 1997. Of those, "I believe only seven achieved meaningful venture returns for their investors by returning more than $25 million in profit to their investors (Last.FM, Spinner, MP3.com, Gracenote, Thumbplay, Pandora, and possibly The Echo Nest)," Packman says. That's a success rate of 4 percent--"Far below that of other internet and technology market segments," Packman notes. He puts the success rate of mobile at 26.5 percent, software as a service (SaaS) at 28 percent, and e-commerce at 23 percent.
Looking for special help
Why is the success rate so low? Packman says the problem is the royalty rates that companies must pay for the use of music. Startups cannot afford the royalty rates, leaving only giants like Apple and Google able to manage the financial burden. It's a problem all of the music industry's making, according to Packman:
Many of us argued for years that it was in the industry's best interest to create a healthy ecosystem of hundreds or thousands of successful companies, all enjoying successful businesses around music. But those arguments fell on deaf ears, and instead the industry fought repeatedly to raise royalty rates over and over again, despite evidence that not a single company ever achieved profitability.
Here's a different take: good. It's not like the artists are getting rich off streaming. Artists such as Bette Midler have explained how little they make. In 2014, Midler laid out the numbers, with more than 4 million song plays netting her just over $114 from Pandora as an example. And that's at the standard royalty rates imposed by the industry.
Packman points at the greed of the industry--and it may be that the labels are socking away the cash and paying musicians next to nothing. They do have a history of questionable actions over decades, and there have been disputes between musicians and labels over the right split on streaming royalties.
But to focus on the industry is to ignore the greed of the tech crowd. Why should a startup get a break on material, whether physical or intellectual property, so it can have a better chance of making money for big investors? Could new contractors expect to get wood for less than competitors in order to more easily establish themselves? Would a new gas station get fuel for less from big petroleum companies? Might you expect your own startup to be entitled to cheaper electric and office space because it didn't have a big infusion of capital?
Entrepreneurs can't be "special"
Of course not. No one owes you, or anyone else, business success. If you need special favors and conditions to compete, your concept and business model aren't viable. There is no reason why the people and companies that create and market the music should underwrite the expectations of entrepreneurs and experienced and moneyed investors who want to find new ways to distribute it.
Could that show innovation? It might, but innovation cannot exist only for its own sake or for the sole convenience of one group at the direct expense of another. The attitude of entitlement permeates the tech industry, embodied by the "ask for forgiveness rather than permission" attitude that many companies take. Asking for special consideration, whether in reduced prices, curbed regulation that governs others in a competitive space, or another form, is pleading for life to be easier on you than the next person. There's no reason why it should be.