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I Saw Great Startups @SFMusicTech, But They Have A Lot To Learn About The Music Business

Music-tech-710x473Op Ed by Dae Bogan of DaeBoganMusic.com

Earlier this week, hundreds of budding entrepreneurs convened at the SF Music Tech Summit XIV to network with potential future collaborators, gain insight from established industry pros, and promote their startups. Hopeful to become the next big thing in music tech, founders shuffled from room to room soaking in as much insight as possible while exchanging business cards along the way with anyone who gave them an ear for a quick pitch.

I had the opportunity to interview a dozen companies that aim to offer musicians and fans cool new ways to experience and discover music. From Phoncert that lets bands broadcast live audio feeds of their shows directly to their fans’ smartphones to Smule that lets music lovers collaborate on karaoke songs with friends from anywhere in the world or play piano while being serenaded by a Bruno Mars song. There was even an awesome new way for musicians to turn a sound recording into interactive sheet music or guitar tablature using Soundslice’s intuitive software and a promising Internet radio platform that lets users build music streams by combining mood, genre, popularity, era, and genre on Musicovery.

UrlAlthough broadly different in their offerings and value propositions, nearly every startup that I interviewed all faced a similar underlying challenge:  there are various intellectual property implications of their product or service in which they were unaware. This wasn’t quite news to me, as I advise a number of music tech startups who face the same challenge.

This brings me to my point: One of the many challenges that music tech startups face early on is that founders with little to no music business background are not fully aware of the IP implications of their cool next-gen product and even those who’ve gone through accelerator programs do not leave with a full understanding.

While most founders understand that music is copyright protected, many do not understand when, where, and how to obtain the proper licenses; what is and is not considered fair use; the impact of user generated content on their licensing requirements; how to become DMCA compliant; or why their claims of “music should be free” and “we just want an open place for people to support their favorite artists by sharing with friends” are dangerous sentiments.

Rockstar developers and savvy businesspeople who start music tech companies must understand the implications of building a product around someone else’s product—that is, music.

Too often, teams forge ahead with a focus on shipping a minimally viable product, generating investor-friendly traction, and earning buzz worthy user adoption, all without considering how IP licenses will impact the business. As a consequence, these future Sean Parkers (Napster) and Martin Grotons (Limewire) leave themselves open to an insurmountable amount of copyright infringement claims.

Founders should take into account at least the following:

  • Sound recordings, lyrics, compositions, and some types of meta data require licenses at any and every stage of your company’s existence.
  • There is generally no such thing as fair use for music tech startups.
  • The way in which users access, store, share, or perform music on or through your platform can require a variety of different licenses.
  • Allowing users to upload content to your server requires a different set of licenses; and video can be more complicated than audio.
  • Licenses require royalty payouts and financial reporting to a number of different rights holders (for any given song) that you should consider in your administrative plans.
  • Monetizing your platform, whether it be through subscriptions or advertising, requires revenue share arrangements for multiple stakeholders.
  • International copyright laws and collection societies can impact the accessibility of your product in other countries.
  • No, independent music is not exempt from copyright laws and pose some of the same IP implications as songs released by major recording artists.

For those who think they’re flying under the radar, consider this: Napster was sued within five months after its initial launch.

ImagesPutting lawsuits aside, it is important to understand the IP implications early on as it does affect your bottom line. Not taking into account the royalty payout requirements for the various licenses you’d need means your profit projections will be dramatically skewed (which doesn’t make for happy investors).

I strongly recommend that anyone considering launching a music tech startup (or a startup that incidentally uses music, such as any video platform that allows UGC or a website with music as a complement to the core product offering) consult an IP attorney or at least a music business consultant who understands IP as it relates to new and emerging business models, like the author.

Lastly, founders should consider the fact that the music tech companies who many aim to imitate have been beat into submission, sued into extinction, or raped of equity over the years. Napster, Youtube, Grooveshark, Myspace, Limewire, ReDigi, Veoh, iMeem, Vevo, Spotify, Thumbplay, Songbird, and many lost souls who’ve you’ve never heard about have all faced the big music machine.  For those big enough to kick and fight, they may prolong the inevitable, all while not turning a profit—Pandora.

Dae Bogan is a serial entrepreneur, professor, startup advisor, and industry speaker at DaeBoganMusic.com. Featured in YFS (Young Fabulous & Self-Employed) magazine, Dae has founded and operated a music publishing company, independent record label, artist management company, event production company, and two music tech startups. Prior to consulting and collaborating with some of the biggest music companies in the world, including Universal Music Group and Live Nation, Dae was Vice President of Marketing at Shiekh Shoes where he launched Shiekh Music and oversaw all in-store and digital music retail, artist sponsorships, musical events, and an independent artist support program. Dae is currently the Professor of Entertainment Marketing at Emerson College in Los Angeles and advisor to several music tech startups including Floshare, Tuneport, Sonabos, Requext, Language Zen, iQnect Music, and Manglers. For more information and industry insights, visit www.daeboganmusic.com

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