5 Music Companies That Won’t Be Around In 5 Years…

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It’s cold out there, especially for companies with terminal financial problems, unsustainable models, incredibly overpaid executives, or a complete unwillingness to adapt.  For example…

(1) Pandora.

Remember, the founder and greatest evangelist of Pandora is cashing out all of his available shares.  Once upon a time, Tim Westergren was a nanny pursuing an outlandish dream.  These days, he’s investing in as many life rafts as his compensation package will allow.

Any why is he doing this?

(a) Pandora lacks a sustainable business model that includes paying content owners what the actual market would demand.  Eventually, publishers and other rights owners will figure out a way to extricate themselves from temporarily-binding court decisions and restrictive PRO memberships.  The technology exists, they just need time (and some will be hostile).

(b) Pandora has the ability to focus their model around paying, premium subscribers, but refuses to do so.  Instead, a freemium model commands greater mindshare and attention on Wall Street, but far less financial stability.

(c) iTunes Radio has already amassed 20 million active listeners in just one month, which is one-third that of Pandora.  So ask yourself, how many will iTunes Radio acquire in one year?  five years?

(2) At least one of the remaining three major labels.

Because extracting ransoms and squeezing equity shares on aging recording catalogs doesn’t last forever.

EMI has already folded into Universal Music Group, which leaves Sony Music Entertainment and Warner Music Group as the other two survivors.  Unfortunately, only one of them is likely to survive the coming winters, or at least be left standing as a stand-alone by 2018.

The reasons for this are simple: Google, ISPs, YouTube, Spotify, and the Pirate Bay (or its replacement) have won the battle over music distribution and devaluation, which means the recording will continue to move towards $0.   Which also means that the number of companies that can build models around massive promotional muscle, while benefiting properly from non-recording assets, is limited.

(3) Spotify.

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Spotify may represent the future of music consumption, but that doesn’t mean Spotify will be around to enjoy it.  So forget about 2018, check out what’s happening right now:

(a) Spotify doesn’t have enough paying subscribers relative to active, free users.  And, it turns out that ad-supported doesn’t support too much.

(b) Research (by Mark Mulligan and others) shows that attracting active, returning users – paying or otherwise – involves massive amounts of churn.  Which means that successfully converting a somewhat-interested listener into a Spotify devotee is extremely expensive and difficult.  Which brings us to…

(c) Spotify has already burned  well past $200 million in cash, and is running low on available cash.  The company is now reportedly considering bank loans to cover future operating costs, royalty expenses, and product expansions.

(d) As a result of financing levels that now surpass $288 million, Spotify has a valuation that is so extremely high that only a small number of companies (ie, Google, Microsoft, or the government of Sweden) could afford an acquisition.  Unless we’re talking about a dump-off fire-sale…

(e) Which leaves a Wall Street IPO as a last-ditch possibility, if Spotify can make it that far.

(f) Oh, and there’s one more problem: YouTube Music, which is coming this Christmas (and probably every Christmas for the next five years.)

(4) Live Nation

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Consider these facts: Live Nation is a company that:

(a) has burned through nearly $1 billion in losses since 2005.

(b) Pays its top executives tens of millions in annual compensation, most notably longtime CEO Michael Rapino.

(c) Routinely acquires companies and things it can’t afford.

(d) Carries a massive debt load of nearly $2 billion despite near-certain economic instability and credit issues ahead.

(e) Is getting outbid, out-smarted, and outdone in the sector that matters most right now: EDM.

(f) Has a CEO that recently cashed out 40 percent of his available shares.

(g) Recently said goodbye to one of its youngest and most talented executives, Nathan Hubbard (now at Twitter).

And this is sustainable because…?

(5) MySpace Music

Hypebot editor Bruce Houghton calls MySpace ‘the internet cockroach,’ but not even Justin Timberlake can keep this insect from being crushed in the 2010s.  The site, which has fallen off the relevancy radar for most musicians and artists (not to mention fans), will stop squeaking pennies from low-rent advertisers when it finally stops paying for the servers.

 


Image by Karen O’D, licensed under Creative Commons Attribution 2.0 Generic (CC BY 2.0).  Written while listening to Chopin.

53 Responses

  1. Ted

    (6) Digital Music News.

    Everyone just got bored of reading the same old shit.

  2. Myth Busters

    Pandora will be around in 5 years. Pandora streams more media in the U.S. than ANY other company. Pandora is bigger than YouTube in total hours streamed. Pandora is number one on mobile too. Those are facts.

    Pandora pays more to artists than all radio stations in the U.S. combined. Pandora pays more to labels than all U.S. radio stations combined. Both facts, which should cause some head scratching because Pandora is only 1/10th the size of all U.S. radio stations combined (in terms of monthly listener hours).

    Pandora’s free service provides more revenue and profitability to Pandora (and more royalties to artists and labels) than their subscription service does. Pandora offers the subscription service because some people don’t want commercials.

    • CoffeeNotWar

      That’s a cute fact about Pandora paying more the radio, anybody worth their salt knows that radio pays nothing to artists and has held artists by the balls for ever because of this.

      • JB

        radio pays handsomely. you can make millions from one song. only hurdle is getting on the radio. good luck

    • b-rad

      you missed the point. Pandora is pushing out a lot of content and paying a premium to do it but not getting enough in return to stay viable.

    • Austin

      It’s pretty clear the author of this article has no clue as how corporate finance actually works.. the spotify example is just silly.. not to mention the pandora nonsense.. Companies that are currently reporting a loss can very quickly turn around to be quite profitable.. especially if they have a high fixed cost base (like most tech companies)

  3. Lynn S.

    What an unserious list. Pandora is like Netflix — they are on every living room device for sale today. They are available on every mobile platform. I just read they are the first music service with Chromecast support. Sure, iTunes Radio is doing well, but Pandora is everywhere. I think a better prediction would be that many of the little fish will be gone by 2018. Sadly, I don’t know if Slacker, Rdio, or Songza will be around in 5 years. Those are great services but they are not everywhere the way Pandora is. As to Spotify, they’ll be around. Maybe they will become a division of another company but that name will be with us. They have been more successful than all others before them. I just think you dislike these big fish and hope they go away. But the fact that so many are going after them tells me they are the future. and that is what is so worrying to artists.

  4. Cliff Baldwin

    This isn’t a list of companies that “won’t be around in a few years,” it’s a list of companies that are bad businesses and bad investments that will probably be around for ten or more years because of the artificial economy in which they thrive. Most of them (with the exception of myspace) will get bought and insiders will profit handsomely. There is a big difference between a bad consumer business and a bad insider business. Many still get rich by failing upwards and selling sinking ships. Happens every day in silicon valley and on wall street.

    • Paul Resnikoff

      If only Classical were growing like EDM (instead of the inverse)

  5. Miss Kristin

    Direct to fan… no middleman – artist – fan LOVE and consumption.
    Ok with me.

    • FarePlay

      Miss Kristen, seeing this idea circulated more and more often. Perhaps it is the artist that needs to develop or in the case of Dave Matthews place more emphasis on those channels for recorded music sales. It gets back to the 1,000 fan theory, but in the case of bigger artists it is 100,000 fans.

      Have a producer / label owner friend who is selling an EP for $5 and shipping for $2 and doing very well. It helps that the artist is strong and they’re supporting CD sales with touring. What is encouraging is their a pop band selling to kids in their teens and early 20’s.

  6. jw

    You know Dreamworks spent $1.8b before they began to turn a profit. At what point would you have put them on your watch list?

    • FarePlay

      Bad example given what a movie studio can make on 1 blockbuster movie.

      • jw

        I don’t see how that changes anything.

        Are you suggesting that a movie studio can’t fail, because it’s so easy & profitable to have blockbuster success? That, even in spite of demonstrated failure to turn a profit, Dreamworks was bound to succeed?

        What dream world are you living in? The point is that they had been written off by many in the movie industry, & had to go out & get $2b to begin over financing their films before they began to make a profit. There’s all sorts of stories like that… for instance, Amazon. I’m saying that the data Paul is using to write these companies off are not always clear indicators of whether a company will ultimately be successful.

        For instance, if/when consumer behavior finally aligns with Spotify’s offering on a massive scale, all of the sudden they’re in the black. That’s the same as Dreamwork’s blockbuster success. It’s the exact same thing.

  7. brucewarila

    Hmm.. What you are sort of saying is that music companies (see list above) that exist to be music companies are probably going to be disrupted by companies that sell high-margin stuff (like iPads). These other companies see music as an essential feature that keep repeat customers on the platform. There won’t be a need for ad-supported music because Amazon, Apple, Google, and others are going make it part of the platform, and they become the “labels” that compete for exclusive rights.. Everything else is just DTF?

  8. Tune Hunter

    First three will have a chance to blossom big time if we switch to Discovery Moment Monetization!
    Last two are mutants on steroids.

  9. Spotify will survive

    Any company that can switch to taking on debt instead of selling shares at this point will survive. Period. Don’t like them but they are heads & tails beyond all of the other streamers.

  10. Paul Resnikoff

    I think one of the most interesting points raised here is that many of these companies are experts at ‘failing upwards,’ and keeping things afloat despite incredible losses. Financial wizardry and stock schemes are part of this, of course that doesn’t make them actually viable companies but it does keep the party going for a long, long time.

    But let’s see: 5 years is a long time. See you on November 1st, 2018. We’ll see how outrageous these predictions are then.

  11. JORDAN

    Why can’t we just go back to the old days how music was 30 years ago, when everything was fine and dandy!

  12. Fred Smith

    Paul, your analysis of Live Nation is really incomplete. While their P&L shows negative net income for the past few years, a lot of that is depreciation charges. If you add back depreciation (like you’re supposed to do when valuing companies), they have very high positive cash flow (EBITDA). Markets value companies on multiples of cash flows. They have enough cash flow to service their debt, finance their acquisitions and operations, and have money left over. Their main investor, Liberty Media, is very happy with them. Just look at their public filings and maybe learn a bit more about how companies are valued.

    • Glenn

      Bullseye. It’s all about cash flow, not GAAP-defined profit and loss.

  13. Fred Smith

    Also I’ve read that Michael Rapino’s latest sale represented 40% of his available stock options but only 5% of the total equity he has in the company (he has a lot of shares too, as opposed to options). So even here you are being very misleading. He still owns 95% of his shares after that last sale and apparently that was the first time he had sold shares. This is definitely not a Pandora-like situation where management is dumping everything. I don’t have insider info, this is just what I’ve read in the press. Are you being deliberately misleading here or did you just not understand this situation? Why do you have so much beef with the company anyway?

    • Twerk THIS

      Ha, the Live Inflation flack steps in with some spin control. Hey Freddie, your boss is taking a $5 MM salary and cash out $10MM at $18 — real CEOs (like, um, Steve Jobs, Jeff Bezos) don’t do that because they’re building companies first, personal fortunes second (not the other way around).

    • Jon Doe

      at least come up with a better fake name than fred smith. live nation will be around for another 5 or so but not much longer.

  14. David

    Most of these businesses have the *potential* to survive and flourish if they play their cards right. E.g. Pandora could increase their revenue by taking more and/or longer ads. Spotify could do more to steer users towards the premium option. The major labels could finally grow the balls to cyberattack the pirate sites, even if it is strictly illegal. Livenation is sustainable because it dominates the market for live music, which is very popular despite the poor quality of much of it (why on earth do people pay through the nose to watch mime?)

    Myspace, maybe not.

    • Anonymous

      Sell pop music and hax0ring boxes are different skills you know.

  15. Anonymous

    ummm.. how about musicians make money like they are suppose to.. performance…hello

  16. Naysayer

    I just tried itunes radio after reading this.
    No way will it beat Pandora. Pandora LISTENS to every track it places. It’s curated.
    iTunes in comparison immediately played the wrong artist and genre I tagged for new station.
    Playing a long dead composer of the same name, rather than the contemporary artist.
    Errors like that show human ears trump algorithms.
    Pandora’s quality is easily ahead of their competitors.

    • annabanana

      I actually find it to be the opposite. I love iTunes Radio. It’s programmed by a mix of an algorithm and curated by a DJ. Pandora is 100% algorithm-based. If you’re tastes are pretty confined and narrow, Pandora is amazing. For example, my sister loves country. So if she types in Carrie Underwood, it does a good job of playing big-name country artists. If you like everything from Jay-Z to Kelly Clarkson to Michael Buble, Pandora can’t handle that. Moreover, just because you like one Michael Buble song, it doesn’t mean you’ll like his entire catalog.

      Also, Apple uses iTunes Radio and the store to help sell their products. Spotify and Pandora do not. They can sell premium accounts, but consumers are far less interested in the software than the hardware.

  17. dogz bollox

    Hahahahhaha fuck myspace… those idiot aeseholes signed their own death certificate 3 years ago when they rapwd every ones (musicians/band) profile pages. Once a good place for edm producers to upload sharw and find new music. … now its a fyckin ghost toqn with only BOTS spamming people…… riddens u mugs

  18. Kdawn

    Live Nation’s customer service is much like its recent losses heading down straight towards he–! Live Nation is one of the worst things to happen to music fans. I hope the author if the article is right, except I hope their gone a lot sooner than 5 years from now .

  19. altavozdistroco

    Google, ISPs, YouTube, Spotify, and the Pirate Bay (or its replacement) have won the battle over music distribution and devaluation,

    BS……..

    This one simple comment shows the ongoing problem with people that write about the music business and those in it. Let’s just take a look at what Distribution is since it happens outside of music too…

    “Product distribution (or place) is one of the four elements of the marketing mix. Distribution is the process of making a product or service available for use or consumption by a consumer or business user, using direct means, or using indirect means with intermediaries.” http://en.wikipedia.org/wiki/Distribution_(business)

    Now since we all can see that distribution is only a model of how goods get from a manufacture to someone that wants to buy it, this hardly something that will go away. BTW Since I’ve been in the music business and online since 1992 I’ve heard the mantra that the internet is going to kill distribution since the start and guess what it hasn’t.

    If anything it gave those doing distro more Channels and last I checked none of the replacements for the Majors listed above do anything other than service their own platforms. Is Google going to put your CD into stores there are till Chains, Multiable location retaiers and about 1000 Mom & Pop stores let alone places like Starbucks. Because the last time I check every Starbuck in the USA has physical Music in them and considering the level of retailing they do if this wasn’t a good choice for them to sell they wouldn’t have CD in all the stores. How about this…. Is your ISP going to get a release out for Record Store Day which is now a top 5 day of shopping in the USA. Will them make copies for you so when your band is on the road playing you can sell them to fans. Hey Sign my itunes copy of your songs it not anything I’ve ever heard.

    Finally what is not talked about here is that Amazon is now how much of the music they sell. Considering they have built seventeen (500k -1 mil sq) feet warehouses in last 4 years and actively signing up aggregators of content you know Distributors pretty sure Distribution is here to say and it will always be done better by intermediaries ….. So please if you’re viewing this or any other article and read the words they are going to kill distribution go ahead and skip to the next article.

    PS pay no attention to the merger of AEC and SuperD……because it had nothing to do with Distro.

    • John Doe

      Your entire point is made surrounding physicall distribution but most paid marketing, whether print or digital is now done to push a download through iTunes or Amazon. On rare occasions there will be a Target deal. I would think CDs will be completely abolished soon and become a vanity type item.

      In five years this would only become more relevant.

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