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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 Presentation Transcript

  • 1. Dalton Caldwell Startup School 2010
  • 2. 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
  • 3. 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
  • 4. Part 1: The ubiquity of music startups
  • 5. 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
  • 6. Recognize this?
  • 7. Recognize this?
  • 8. 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
  • 9. Part 2: Specific music startup challenges
  • 10. “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.
  • 11. 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
  • 12. 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”
  • 13. 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
  • 14. 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)
  • 15. Part 3: The structural barriers to innovation
  • 16. 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
  • 17. 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”
  • 18. 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
  • 19. 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
  • 20. How I felt after it was over
  • 21. Anyway…
    • Don’t be cannon-fodder. Work on things you love. Life is too short.
    • I am working on a new startup: