Resnikoff’s Parting Shot: Still Broke After All These Years

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One of the most important truisms of the modern music business is now becoming its most tired cliche.

And, an endlessly seductive siren song for entrepreneurs.

After the dust settled on an initial wave of disruption, the industry realized that consumer appetites for music were greater than ever, thanks to super-lubricated channels for sharing, discovering, and promoting content.  Of course, music is always evolving, growing and changing.  But the growth in consumer appetite is not the result of a revolutionary artistic change; rather, it is being stimulated by technology that encourages discovery and massive acquisition.  That is happening against serious declines in paid content, driven primarily by CDs, a meltdown only partially compensated by digital and mobile formats.

By now, this is well-worn background.  Welcome to the tease that is the music business, the vexing riddle that sinkholes millions in startup capital, motivates endless false starts, and draws a rash of profitless business models.  This is not a space that is easily monetized, or licensed for that matter, and the result is a trail of underperforming startups and lots of lost cash.

And make no mistake, very few are actually making money in this space.  Major labels are bleeding, that is obvious, thanks to a nosediving recording.  But other, well-established areas of the business are also facing challenges.  Publishers – major or otherwise – are often flat, despite their willingness to license emerging channels.   Less CDs means less mechanical royalties, and publishers are under considerable stress to innovate.

Outside of the majors, other sectors of the business are often lauded as being healthy.  But anything looks good next to the recording industry.  And just like publishing, the concert industry also faces serious pressures, thanks to an increasingly frugal consumer.  Think this is a momentary lapse of liquidity and consumer confidence, one that will have a negligible impact on concert attendance?  Analysts think not, and that is causing serious stress on shares of Live Nation (LYV), down nearly 60 percent this month alone.

Meanwhile, some of the biggest names in the digital music space are still in the red.  The Orchard is still moving towards profitability, Pandora is facing potential extinction from raised recording royalty rates, Sony Ericsson is struggling against softening demand for high-end, music-related phones, and MySpace Music remains a major monetization experiment.

Even Apple, one of the most successful and healthy companies in the world, makes little money from paid downloads.  And they dominate the space!  That leaves very little for the remaining crop, whether Napster (now owned by Best Buy), Rhapsody (now jointly owned by RealNetworks and MTV Networks), or even niche players like eMusic, a company that advertises itself as a distant, second-place behind the iTunes Store.

Ironically, even the P2P revolution has been anything but a cash bonanza.  The biggest file-sharing firms are not big moneymakers, thanks to a reliance on low-priced CPMs, and frequently, bundled downloads, spyware, and adware.  In fact, the biggest financial beneficiaries are probably broadband ISPs.

Others are swimming in the red right from the start, thanks to a difficult licensing environment.  If a startup wants an upfront blessing, label licensing is an immediate hemorrhage.  Otherwise, the legal baggage that frequently comes with non-label traction (Project Playlist, Imeem, Seeqpod) requires a serious legal fund.

And the story just goes on and on.  Yet, the lure of figuring out this seemingly-hopeless riddle, coupled with a passion for the sexiness of music, is enough to keep the experimentation alive.  The reason is that demand for music is so immense, and so is the entrepreneurial appetite for translating that energy into cash.  Even in tough economic times.

Paul Resnikoff, Publisher