Looks like our friends at Imeem may be taking a bullet soon. Wired has a very interesting post explaining why these guys are fucked. According to Eliot Van Buskirk, “Imeem’s central problem — and that of any other licensed on-demand music site — is that the revenue it can derive from music fluctuates with market pressures, while the record labels and other stakeholders tend to want the same amount per song regardless of what’s happening in the rest of the world”.
According to this and many other reports, Imeem and its competitors are paying a penny a play for each stream. Well, guess who came up with that model and price? I did. Or better put, our people who were running Mashboxx at the time.
Here’s the whole story. Five years ago, Andy Lack, then CEO of Sony Music and a great guy, pitched me an idea that evolved into Mashboxx. The original intent in Andy’s mind was to turn a p2p network into a music sampling service where a user could go and listen to whole tracks on demand before they had to make a purchase decision. At that time, we were set to offer 3 free streams–both free to us and free to users. The other labels went along with it. We had fully executed contracts that not only allowed for this, but also allowed us to traffic in unidentified “grey” content on the p2p networks. To my knowledge these are the only licenses from all 4 major labels of their kind. The upside for labels is that we had a system that would allow them to identify and monetize all of their orphaned tracks–those that for whatever reason had never been digitized and included in their commercial feeds. The long tail.
But we knew that there was no way that anybody could make a penny from selling 99 cent singles. So, we came up with a model that is so unique –complicated and sophisticated yet simple in concept–that has yet to be duplicated. We based this model on the users’ activity and traffic, not just playing streams and downloading and stupid low paying banner ads. It was based on the most successful business model in the history of the internet. In short, we merged the Google model with the iTunes model with the free p2p model with some revolutionary (to the music industry at least) data services. When we tried to explain this model to the labels their eyes literally glazed over. They were only interested in selling singles. Fine. So we went off and the more we did the numbers, and I mean digging in deep, the more we realized that we were dealing with a gold mine. The numbers looked like they were coming out of the telephone book. It was so astounding that we keep getting more and more conservative in our calculations and the numbers were still awesome.
So, we knew that if and when the labels finally woke up to how much potential profit was there, we made a strategic decision. We figured that it would be better for us to go to them and “offer” them more in the form of a share of the revenues. That way we could set our own starting negotiating point. So, we did more calculations and here’s what we finally got the labels to sign off to: they would get a penny a play AGAINST a 40% share of the revenue attached directly to that individual track. WE held another 10% in escrow for the music publishers (the Harry Fox Agency is the dumbest bunch of jerk offs on the planet. They make the labels look like fucking NASA. But that’s another story). So, the penny a play became the industry standard.
So why didn’t we get off the ground? We talked to all of the major VCs in late 2005, including Sequoia. At the time, just like the labels, they couldn’t understand the model and focused solely on the fact that we were forced to offer only WMA tracks at the time for sale. We told them all that it would change soon enough and move to mp3, but they just have no real vision. Or balls. So in the beginning of 2006 we became engaged with a strategic partner-a major UK-based consumer brand with many businesses. We went through extensive due diligence and signed a term sheet for a $12 million investment. Practically on the day of closing, they ran into an issue with another one of their businesses that was about to launch in the US and decided to halt all new investments. We got fucked.
So that’s the real story. And frankly I hope that Imeem takes it in the ass since the CEO is an asshole who doesn’t answer his emails. So, suck it!