Why Startup Founders Ignore Copyright
Some may wonder, if improper licensing is such an issue, why startups don't take the time to make sure all their legal ducks are in a row before proceding, but as it turns out, endless negotiations and miles of red tape can be more of a detriment to their success than ignoring copyright, suggesting a better alternative is needed.
You know what’s the fastest way to kill a new product? Spending over a year in licensing negotiations with corporations that know you need them more than they need you. An article on the Music Business Worldwide blog recently took aim at comments by the founder of Flipagram: “We did it kind of like entrepreneurs do sometimes, we kind of just did it and [decided] we’d ask for permission after.”
I understand how those comments sound provocative. Venture capitalists (VCs) have a lot of money, right? Startups do pay staff and other types of bills, right? The problem is not that startups don’t want to pay; it’s that the unpredictable nature and length of negotiations is worth the significant legal risk of not licensing straight away. If licensing was transparent and predictable, VCs would gladly spend some extra money in funding startups if it were to take away a big risk like this. Not only would music startups be able to secure more funding, but more music startups would get funded.
Validating product and market assumptions is the most important activity for startups in their early years. Waiting for negotiations that can last a year or more, before being able to launch and test assumptions is idiotic. Especially since you will likely need to adjust features or do a pivot after you actually get to validate assumptions, which means you have to go to the negotiation tables AGAIN.
As it currently stands, I recommend startups to approach the music industry as a partner and help them solve a particular need. Make the case that you’re developing a new market, explain what you’re investing in it and that you want them to join you on this journey. This can help secure more favourable conditions and underscores the fact that time is of the essence.
What is needed is a Startup License that lets startups quickly and flexibly license music from the majors and largest indies for a set duration. After this duration, startups would still have to negotiate, but at least they’ve got their products figured out and investors will have a better understanding of what the business is potentially worth. The license should allow startups to opt in or out of territories. If you want to do UK-only, fine. If you want to pay more and do something global, it’s possible. A global startup music license would do tremendous things for innovation in music.
The problem is, it’s not in the interest of a powerful part of the music industry. For one, all of the larger music corporations own shares in music startups. Many of these startups still have to prove themselves, so you can see them as bets by the industry on what’s going to work. If it turns out it doesn’t work, the industry can stop licensing them, let them fail and move on to the next thing. If you want to launch a startup that seems like it undermines one of these bets, you’re going to have a difficult time getting it licensed. As music industry analyst Mark Mulligan recently wrote: “Major record labels enjoy a privileged position, because rights are so concentrated in music they each have an effective monopoly power because each of them have the power of veto if they say no.”
Don’t hold your breath for the industry to put something like this together. This needs to come from artists, startuppers, VCs and anyone who dreams of a more innovative music landscape. It needs to come from governments who believe in actual free market dynamics, as opposed to a market dictated by content monopolies. Perhaps I’m wrong and it will come from the majors some day when they invest more money into companies that open up new revenue streams than into music. Who knows.
In any case, startup music license initiatives will probably be limited to certain territories to start with. I think the European Union has the best chance to be taking the lead with something like this, because of the Digital Single Market goals and directives for multi-territory licences for the online exploitation of musical works. Hopefully the resulting innovation will inspire rightsholders around the world to join similar initiatives to bring about a truly global, standardized music license for early stage startups.