Lessons From 5 Failed Music Startups

There’s a new tombstone in the music startup graveyard. After almost a decade Grooveshark, a music sharing and streaming platform, is calling it quits after four years of music industry lawsuits. It joins Spiralfrog; LimeWire, Napster, Bloom.fm, imeem, Qtrax and many others that found themselves in trouble with labels or just burnt through cash too fast. Yet still the music industry lures in new attempts ever year, as entrepreneurs look for new ways to fix a space where consumers don’t want to pay for artists' work. Here are the lessons from the dead that any new music startup should heed.

1. Grooveshark - Make Sure What You’re Doing Is Legal

Grooveshark’s fall comes for the same reason that many of the first generation of online music downloading and streaming service went out of business. In an apologetic shutdown notice the company admits that it failed to secure the rights to the vast majority of music that its 35m users, as well as company employees, uploaded and streamed on the platform.  

“We started out nearly 10 years ago with the goal of helping fans share and discover music. But despite best of intentions, we made very serious mistakes. We failed to secure licenses from rights holders for the vast amount of music on the service. That was wrong. We apologize.”

The company has long been wrapped in copyright infringement disputes with the Recording Industry Association of America, which represents Sony, Universal and Warner, but now it’s finally lost the fight. To settle the suit the company is agreeing to cease operations immediately, wipe clean all the data on its servers and hand over ownership of its website, mobile apps and intellectual property, including patents and copyrights.

The company ends the statement on a more uplifting note encouraging users to pay for properly licensed services such as Spotify, Beats or Deezer. The lesson here is clear: get licensing deals with the labels. photo CDs long_zpsh20lkurr.png

2. Bloom.fm – Make Sure Investors Are In For The Long Haul

The problem with doing things the legal way is that it’s not cheap. The upfront costs of operating in the music space are high and revenue streams slight. Just look at Spotify which has raised more than half a billion to date with another half a billion round reportedly in the works.

Investors expecting any return at all need to get on board for the long haul. UK music streaming app Bloom.fm had the carpet pulled out from under it this time last year when backer TNT suddenly decided it wasn’t quite up to the job of footing the bill for the company which had attracted 1.1m users in its first year.

“Our investor, who’s been along for the ride since day one, has unexpectedly pulled our funding” said the company in a short blog post. “It’s come so out of the blue that we don’t have time to find new investment. So, with enormous regret, we have to shut up shop.”

Bloom.fm allowed users to choose packages of USD1, USD5 or USD10 for access to limited music streaming. However, with low margins and big bills to pay out to rights owners means music startups aren’t a fast turnaround for backers.

3. Turntable.fm – …Because It’s Expensive As Hell

Turntable.fm was a company that set out to play by the rules. Sign all the right papers, tick all the right boxes and avoid any of the dodgy activity that normally lands music startups in court. The company’s service allowed users to enter different ‘room’ where designated ‘DJ’ users selected tracks and other users could chat. The business was built on an ad-supported free  tier with premium ad-free version. The service signed up 140,000 users in its first month when it launched in 2011, which led to a USD7m Series A round – a lot of money back then.  

However, playing by the rules proved costly and time consuming. The company was forced to hold back international expansion as it worked to secure the proper deals. In that time buzz died down and user numbers began to dwindle. After an unsuccessful pivot to a live-music based experience the company folded last May.

“Ultimately, I didn’t heed the lessons of so many failed music startups. It’s an incredibly expensive venture to pursue and a hard industry to work with,” said founder Billy Chasen in a blog post.

“We spent more than a quarter of our cash on lawyers, royalties and services related to supporting music. It’s restrictive. We had to shut down our growth because we couldn’t launch internationally. It’s a long road. It took years to get label deals in place and it also took months of engineering time to properly support them (time which could have been spent on product).” photo smashed guitar_zpsv7myxung.png

4. Zillionears – Make Sure People Actually Like The Idea

Zillionears hoped to allow musicians to engage fans and make money thought music sales –something that still happened when it launched in 2011 – through flash sales and ‘dynamic pricing’. The company mistakenly took conversations with a couple of artists, who said it seemed like a cool idea, as validation in the idea. However, of the 1,700-plus artists approached only one signed up for the launch, only to discover they didn’t properly understand the term ‘dynamic pricing’ after which they switched to another platform.

“From that beta test we found out that our software needed to be rewritten to comply with Amazons terms. More importantly though, people really didn’t really LIKE anything about our product. No one that used the service thought it was that cool. In fact, some people that participated in the sale didn’t even like our “dynamic pricing” system. They were trying to support the artist, so saving a few dollars didn’t excite them. They could easily have just gotten his music for free elsewhere,” said company co-founder Jordan Nemrow in a blog post. “We should have packed it up early right then, but we felt like we had already gone too far to quit.”

The company shut down a couple of months later, after a second beta launch. There are lots of approaches companies can take to distributing and discovering music, but the lesson from Zillionears it that it’s worth taking time to validate the idea properly before ploughing through savings.

5. Tidal – Fight For The Right Team

It’s easy to make fun of Tidal and kick it while it’s down. However, while it’s unfair to call it the platform a failure after a few months it offers a spectacular insight into how not to launch a service. It’s widely acknowledged that artists are not getting a fair deal from the current way the music industry works, with labels taking a huge cut of what little comes in, as consumers continue to listen for free.  

This is what rapper Jay-Z is trying to fix through streaming service Tidal, which allows users to stream content for USD9.99 or USD19.99 a month. However, instead of championing struggling young artists the company’s recent relaunch saw some of the music’s richest individuals from Kanye West to Beyoncé to Madonna ask for a fairer deal for themselves. It soon transpired that even with its trending #TIDALforALL campaign a room full of millionaires asking for more money didn’t work as a marketing tool.

The company has been widely criticised by consumers and by speaking against Spotify and Pandora, Tidal actually drove up downloads of its rival services, while its app plummeted out of the App Store charts. Now the company is emphasising discovery of unsigned artists in an attempt to fight for those actually struggling in the digital music space, but with fewer than 800,000 users the exposure is not as powerful as it would be on other platforms.