Taking Note of Music Tech’s VC and Accelerator Market Trends in 2017

As a part of today’s modern music industry there exists a complementary and thriving support system of venture capital firms and music tech startup accelerators who are providing a multitude of innovative services.  A fascinating examination of the current state of this ecosystem appeared in an article entitled Music Pushes to Innovate Beyond Streaming, But Investors Play It Safe: Analysis, by Cherie Hu, posted on Billboard.com on 7/24/17. I highly recommend reading it in its entirety for its insights, assessments and accompanying graphics.

I will summarize this feature here, add some links and annotations and, well, venture a few of my own questions. Also, I believe this is a logical follow to three previous Subway Fold posts about the music biz including:

Tempo

In mid-2017, the music tech market is generating signals as to its direction and viability. For example, Jawbone, the once thriving manufacturer of wearable audio devices is currently being liquidated; Soundcloud  the audio distribution platform let go of 40 percent of its staff recently only days before the firm’s tenth anniversary; and Pandora has experienced high turnover among its executives while seeking a sale.

Nonetheless, the leaders in music streaming are maintaining “the music industry’s growth”. Music tech showcases and music accelerators including SXSW Music Startup Spotlight, the Midemlab Accelerator, and Techstars Music are likewise driving market transformation.   During 2017 thus far, 54 music startups from more than 25 cities across the globe have taken part in these three entities. They have presented a range of submissions including “live music activations and automated messaging to analytics tools for labels and artists”.

While companies such as Live Nation, Balderton Capital and Evolution Media have previously invested in music startups, most investors at this mid-year point have never previously funded a company in this space. This is despite the fact that investments in this market sector have rarely returned the 30% that VCs generally seek. As well, a number of established music industry stars are participating as first-time or veteran investors this year.

Of the almost $900 million funding in music tech for the first half of this year, 75% was allocated for streaming services – – 82% of which went only to the leading four companies. However, there remains a “stark disconnect” involving the types of situations where music accelerators principally “lend their mentorship” in “hardware, virtual reality1, chatbots, label tools”, and the issues that VC concentrate the funding such as “streaming, social media, brands”.  Moreover, this situation has the potential of “stifling innovation” across the industry.

To date, music accelerators have “successfully given a platform and resources” to some sectors of the industry that VCs don’t often consider. For example, automated messaging and AI-generated music2 are both categories that music accelerators avoided until recently, now equal 15% of membership. This expansion into new categories reflects a much deeper “tech investment and hiring trends”. Leading music companies are now optimistic about virtual digital assistants (VDA) including chatbots and voice-activated systems such as Amazon Alexa3. As well, Spotify recently hired away a leading AI expert from Sony.

Rhythm

However, this “egalitarian focus” on significant problems has failed to “translate into the wider investing landscape” insofar as the streaming services have attracted 75% of music tech funding. The data further shows that licensing/rights/catalog management, social music media, and music, brands and advertising finished, in that order, in second at 11.1%, third at 7.1% and fourth at 3.9%.

These percentages closely match those for 2016. Currently, many VCs in this sector view streaming “as the safest model available”. It is also one upon which today’s music industry depends for its survival.

Turning to the number of rounds of music tech funding rather than the dollar amounts raised, by segments within the industry, a “slightly more egalitarian landscape” emerges:

  • Music hardware, AI-generated music, and VR and Immersive media each at 5.0%
  • Live music; music brands and advertising; streaming; and social music media each at 15.0%
  • Licensing, rights, and catalog management at 25% (for such companies as Kobalt Music, Stem and Dubset)

Categories that did relatively well in both their number of rounds of funding and accelerator membership were “catalog management, social music platforms, and live music”.

Those music tech startups that are more “futuristic” like hardware and VR are seen favorably by “accelerators and conference audiences”, but less so among VCs.  Likewise, while corporate giants including Live Nation, Universal Music Group, Citi and Microsoft have announced movement into music VR in the past six months, VC funding for this tech remained “relatively soft”.

Even more pronounced is the situation where musical artists and label services such as Instrumental (a influencer discovery platform) and chart monitors like Soundcharts have not raised any rounds of funding. This is so “despite unmatched attention from accelerators. This might be due to these services not being large enough to draw too “many traditional investors”.

An even more persistent problem here is that not many VCs “are run by people with experience in the music industry” and are familiar with its particular concerns. Once exception is Plus Eight Equity Partners, who are trying to address “this ideological and motivational gap”.

Then there are startups such as 8tracks and Chew who are “experimenting with crowdfunding” in this arena but who were not figured into this analysis.

In conclusion, the tension between a “gap in industry knowledge” and the VCs’ preference for “safety and convenience”, is blurring the line leading from accelerator to investment for many of these imaginative startups.

My Questions

  • Of those music startups who have successfully raised funding, what factors distinguished their winning pitches and presentations that others can learn from and apply?
  • Do VCs and accelerators really need the insights and advice of music industry professionals or are the numbers, projects and ROIs only what really matters in deciding whether or not to provide support?
  • Would the application of Moneyball principles be useful to VCs and accelerators in their decision-making processes?

 


1.  See the category Virtual and Augmented Reality for other Subway Fold posts on a range of applications of these technologies.

2.  For a report on a recent developments, see A New AI Can Write Music as Well as a Human Composer, by Bartu Kaleagasi, posted on Futurism.com on 3/9/17.

3.  Other examples of VDAs include Apple’s Siri, Google’s Assistant and Microsoft’s Cortana.

Book Review of “The Song Machine: Inside the Hit Factory”

Image from Pixabay

Image from Pixabay

It is my completely unscientific theory that the music which often matters most to people is the music they listened to when they were young. From Stravinsky to Springsteen to Taylor Swift, the tunes of your youth will likely stay with you for life. These recordings will always get your attention whenever you hear them and perpetually occupy a special place in your heart from their opening bars to their final fades.

Is there really anyone of any age having any music preference who doesn’t get the chills or at very least tap a toe every time they hear the majesty of the Rite of Spring, the propulsive launch of Born to Run, or the megawatt energy of Shake It Off?

Today’s Music Biz and How It Got That Way

The music, artists, producers and companies who are the subjects in The Song Machine: Inside the Hit Factory (W.W. Norton & Company, 2015), by John Seabrook, are not those that I happened to grow up with. Nonetheless, for interested readers who either did or did not come of age at some point during the past two decades, this highly engaging account of the extraordinary changes throughout the music industry will provide readers with a compelling narrative, cultural history, and business case study. This book further excels as an insightful guide through the music industry’s production processes of writing, recording, marketing, distributing and performing today’s chart-topping tunes.

Like a well-arranged progression of chords, each successive chapter skillfully takes you deeper into the operations of the leaders and innovators of the music industry. It is not so much about the music celebrities’ personal lives as it is about the trajectories of their careers, particularly importance of steadily creating viable hits. Moreover, it carefully examines how smash recordings are well-crafted by everyone involved in their creation to make certain they succeed with global music audiences.

Seabrook illuminates exactly how many of today’s hits, as well as misses, have enough deliberate calculation in the assembly of their beats, lyrics and evocative musical “hooks” to send a rocket to, well, Nep-tune and back. His exposition of the evolution of the “hit factory” takes place beginning early Euro-Pop then on to the Backstreet Boys (and their competitors), and next to the emergence of today’s worldwide stars. He devotes quite a bit of his reporting to how this is done for today’s A-listers such as Rihanna, Katy Perry and Kesha by a small and closely knit group of writers and producers. How and why the leading creatives achieved their prominence in today’s music scene is also finely threaded throughout the book.

Going to a Global Go-Go

As colorfully detailed, the US is often the center of the music industry, with many of its leading participants gravitating towards New York and Los Angeles. There are other key international personalities from Europe and Asia. Sweden in particular had first given a start several of the most influential producers with long histories of innovation in Europe. Later on, they brought their work to the US and achieved even greater commercial success.

Another tectonic disruption, online file-sharing, is explained but not pursued in great depth. Rather, and rightfully so, the author chose to examine how purchasing and downloaded MP3s is now giving way to rising volumes of streaming. He reports on the webwide phenomenon of Spotify’s business model, including its disparate economic impacts upon consumers and musicians. (These seven Subway Fold posts also cover a range of developments involving Spotify.)

Clearly and by definition, factories are places where products are fabricated and shipped.  Their operations must be periodically modernized in order to remain competitive. So too, it has become imperative for today’s music industry to adapt or face decline. The Hit Factory takes readers deep and wide into this unique and worldwide production system where hits by many of the mega-stars’ hits are indeed manufactured. Seabrook’s expert prose conveys the incredible effort, business sense and precision this enterprise requires.

Two Part Harmony

If you have the opportunity to do so, I highly recommend reading both The Song Factory and How Music Got Free (previously reviewed in this August 31, 2015 Subway Fold post), together for a comprehensive understanding of how the multi-billion dollar music industry had fallen and then reinvented itself to rise again. Each book individually, and even more so together, deftly captures this unique world’s intersections of art, science and commerce.

For yet another engrossing historical perspective on the state of the music business set a few decades earlier during the 70’s and 80’s rock era, I further suggest reading a highly entertaining account entitled Hit Men (Crown, 1990), by Frederick Dannen.

Finally, all of the foregoing aside for a moment, have things really changed that much in the pursuit of musical success? Once you have finished The Hit Factory, I urge you to also listen to The Byrds’ 2-minute classic hit single So You Want to Be a Rock ‘N Roll Star and then to reconsider your answer. This song’s sentiment rings as true today as it did way back then.

That’s my theory and I’m sticking to it.