Mobile Music Business: Not for the Faint of Heart
Reuters has a report this morning on a stark truth that faces aspiring digital music services these days: working with record labels is going to carry a hefty price. Now that the labels are finally beginning to accept that the music business changed, largely without them, they’re jacking up the upfront advances for licensing music and even demanding equity stakes in startups. Here are some examples, quoted from the article:
– Ad-supported download service SpiralFrog, for instance, paid more than $3 million in upfront advances to Universal Music Group alone before it even went live, and has paid additional millions in licensing fees since the original term expired.
– Imeem is said to have paid advances as high as $20 million and gave labels equity in the company. (Imeem disputes that figure but the equity stake is now a matter of public record.)
– A mobile messaging company recently walked away from negotiations in which a label demanded 85% of the company’s gross revenue, even though the deal didn’t involve any music licensing.
“What was once considered a major advance—$500,000 or $1 million—is becoming a $2 million or $5 million advance and really over-the-top requests for equity,” former EMI digital exec Ted Cohen said in the article. “If you raise $15 million to start a business, and have to spend $12 million just to pay off the content companies, that leaves you with $3 million to run a company. I don’t know anybody able to do that.”
