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Talk from @daltonc
 

Talk from @daltonc

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Slides from Dalton Caldwell's talk at Startup School 2010.

Slides from Dalton Caldwell's talk at Startup School 2010.

@daltonc on twitter

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    Talk from @daltonc Talk from @daltonc Presentation Transcript

    • Dalton Caldwell Startup School 2010
    • Who am I?
      • Stanford ’03, B.S. Symbolic Systems, B.A. Psychology
      • Founder/CEO of imeem, 11/03-11/09
      • Key stats as CEO of imeem:
        • Raised over $50MM from Sequoia and others
        • Acquired 3 companies, 95 headcount
        • Reached a $24MM yearly revenue runrate
        • imeem.com reached Alexa rank 75, 26MM uniques
        • imeem music widgets reached 108MM monthly uniques at peak, at the time ~10% of the internet
    • The most important things I will say
        • Silicon Valley vs Hollywood, aka “Us” vs. “Them”
        • Polarized groups constantly misinterpret each other actions & view everything through a lens of mistrust
        • People tend to over-ascribe behavior to innate personality , and under-ascribe behavior due to situational factors
      • You can quote me on this:
        • The music industry is largely populated with smart people who are largely ethical, nice and reasonable… in equal % to silicon valley
    • Part 1: The ubiquity of music startups
    • Reasons to do a music startup
      • Everyone is an expert
      • “Someone needs to fix the music industry”
      • “It’s hard to discover new music, we help you discover music from your social graph ”
      • It’s easy to get traffic. Lots of traffic
      • Users will overlook buggy or unusable products
      • It makes you seem cool
    • Recognize this?
    • Recognize this?
    • Cool story, bro
      • It is worth examining the opportunity costs
        • Chris Dixon: “Every time an engineer joins Google, a startup dies”
        • Me: “Every time a founder does a music startup, a likely-more-successful startup dies”
      • This applies to me personally as well
        • Spending 6 years building something, then watching it dismantled and scrapped, sucks
    • Part 2: Specific music startup challenges
    • “Tools for artists” startups are hard
      • Artists, especially small ones, don’t have any money.
      • Market is totally saturated
        • Hundreds of these startups exist
        • TuneCore is really good
          • Disruptive “flat fee” services pricing model w/upsell
        • Topspin is really good
      • The economics are challenging
        • Assume 20% margins for running your own store.
        • ie you have to sell a $250K of indie band downloads every month to make 50K to run a startup on. Good luck.
    • Download store startups are hard
      • Major label route
        • Advances
        • iTunes has >90% of market share
        • Also the matter of Amazon, Google (soon) & dozens of others
        • You have to pay in ~$5MM to play, and you make 20% margins. ie you have to sell $25MM of Justin Bieber to get back your paid in capital
    • Ad-supported is hard
      • Per-play minimums are very challenging
      • Quarterly minimums + advances are deadly
      • International, publishing, long-tail content owners
      • The labels have soured on ad-supported
        • They feel it devalues music and is slippery slope
        • Ringtones propped them up through early 00s but smartphones have killed the 1.99 ringtone business
        • When free music services translate to mobile things & your car, it is officially “substitutional”
    • Subscription startups are hard
      • Spend ~2 years doing deals pre-launch
        • Find investors to put in several million for licenses
        • Give the labels 10-30% of your company
      • Hypothetical subscription music deal
        • $10 per month from user, ~10% monthly churn rate
        • After content owners + publishing, you are left with $3-$5 to pay headcount, bandwidth, and customer acquisition
        • Quarterly minimums, regardless of subscriber numbers
        • Each country has different licensing bodies
      • Napster, Rhapsody, Spotify, Rdio, Thumbplay, MOG
        • Rhapsody has had $300MM dollars of ads on MTV/VH1
    • Wrapping it up
      • “ Unlicensed” or “sorta-licensed”
        • Recent headline: “UMG declares legal jihad against Grooveshark”
        • Being sued is not badass. Ask anyone who has been sued.
      • DMCA radio seems to be the best approach(?)
        • Pandora is doing a great job, but if you do 100MM in revenue and not exactly be profitable…
        • Lobbying congress to survive is hard
      • (yes, I am missing other business models)
    • Part 3: The structural barriers to innovation
    • Antiquated legal framework
      • Similar to the software patent quagmire
      • Poorly defined rules for what is right or wrong
        • Mashups, DMCA, publishing, international
        • Even iTunes gets sued all the time for infringement
      • Lawsuits seem to choose targets that get popular/have lots of cash.
      • M&A Catch-22 Non-transferable deals
        • no deals = no acquisition
        • have deals = no acquisition
        • Company as an asset is effectively not transferable
    • Why the reason labels seem irrational
      • Market went from ~$15B in the 90s to < half of that and declining
      • Executives are tasked with filling/slowing this revenue gap
        • Need new streams to generate $100MM to billions, fast
      • They are emotional because laying off people, and worrying about your job and future career path SUCKS
      • Your bootstrapped, ramen-profitable music site is useless to them
        • It’s worse than useless, your potential revenue is not even worth their salaries to talk to you and do a deal
      • Every startups pitch about “planting seeds” and “focusing on user growth first” is the same. They have tried this and gotten burned.
      • “ If you go out of business, there will be 2 more to take your place”
    • Structural cash incentives
      • From macro-view startups are money transfer vehicles
        • Follow the cash from VCs, to startups, to labels
      • The structural incentives are for immediate cash
        • Label deals are evaluated/rewarded on short term income
          • “ Advances” & “Settlements” are immediate cash
        • A/B tests show that aggressive litigation/threats is more financially successful than no-money down partnerships
        • Similar to short-term incentives on Wall St leading to non-optimal long-term outcomes, and sometimes disaster
    • My best shot at an “answer”
      • Broadly available, legal music APIs
        • I tried… sorry imeem couldn’t pull this off
      • Congress expands statutory licensing frameworks
        • Clearly defined publishing
        • Clearly defined audit/reporting
        • Clearly defined technical definitions of legality
      • International adoption of this statutory licensing
      • Similar solution to software patent issue
    • How I felt after it was over
    • Anyway…
      • Don’t be cannon-fodder. Work on things you love. Life is too short.
      • I am working on a new startup: