Analysis

Music and tech startups: where is the innovation in 2018?


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What kind of partner does the music industry make for music/tech startups in 2018? There have certainly been bumps in the past, from venture capitalists swearing never to invest again in startups requiring music rights, to shutdown firms blaming rightsholders for their business failure.

Yet for their part, rightsholders argue that their focus is rightly on protecting the work of their artists and songwriters, and often point to some of the poorer examples of startups with unworkable business models and unreasonable expectations.

A panel at Music Biz and Music Ally’s NY:LON Connect conference in New York explored the investment and innovation landscape. Panelists included Katherine Cheung, MD of Open Road Holdings; Gillian Ryan, general manager for TMWRK; and Rishi Patel, managing partner at Plus Eight Equity Partners. The moderator was TheWaveVR’s Dave Haynes.

“Investors have been curious and it’s piqued their interest more and more. “The tide is changing to be much more receptive to investing in music and music technology as an asset class,” said Patel.

Ryan gave a music management company’s viewpoint. “Companies are directly coming to artists and managers, and it’s not just about money: it’s about having that strategic value that being close to the talent can provide,” she said.

“And a lot of things are changing in the industry when it comes to blowing up traditional models: it has become advantageous to us to become a strategic investor. In that realm often we can come in as an early sweat-equity investor, and help something grow.”

Cheung gave an investor’s view on what she looks for in tech startups, music or otherwise. “It’s about the experience. That’s the future of music, technology and life. So that’s what I would back!” she said.

The panel considered some specific sectors: starting with blockchain technology. “I’m not so hot on it today, but I think it’s going to be pretty hot sometime in the future,” said Patel. “The challenge with all of these [blockchain] technologies is there’s too many solutions being thrown at the problem: too many technologies, and none of these technologies talk to one another… every one of these technologies is proprietary.”

He suggested that the music industry needs to come together and create a standard. “They need to come together and invest in an entity that supports a uniform standard around the data,” he said. “At the end of the day, blockchain? Today it’s going to take a long time for that to happen… but if the industry comes together in an appropriate way and creates a standard, it could be a solution.”

Ryan said she’s bullish on blockchain, while accepting the issues around the amount of competing companies with proprietary technology. “To me, the future of blockchain technology in this realm, and data in music, is so needed. It’s so essential,” she said. “Maybe it’s less about my investment brain around this and a little more about my optimistic operator brain, but I am hopeful. And we have made a small investment in a firm.”

The conversation moved on to hardware. “There’s a lot of AI and VR related to future experiences. That you can also interact with the artist. Think of Thom Yorke, who does a lot of experiential music. And that maybe you can add to it. You could go live with him in a pod, or whatever. There’s something there with these new technologies. That’s where I’ll be investing my money,” said Cheung.

“I like the idea of VR. I think it’s a ways out. My issue with VR is when do 50% of people in this room actually own a VR headset?” said Patel, who praised. “It shouldn’t be abut trying to film existing environments that we can experience first hand. It should be taking us into new worlds.” He added that the financial context is challenging for an investor: if mainstream adoption is three to five years away, investors will have to continue funding startups until that point.

Ryan said that as a management firm, TMWRK is seeing more demand from its artists to get involved in VR. Cheung said “it’s a nascent technology: I agree with you on your timeframe of two to five years”. But she suggested that China is “leapfrogging us” in terms of adoption.

Ryan talked about live music. “It’s something that hasn’t been stolen yet… in our company live is most of the income, as it is for most artist management and artists. There’s a lot of opportunity in live,” she said.

The session continued with the panelists offering views on which startups did well in 2017, and their tips for 2018. Patel cited Lynq which has developed a technology for compression of data: “you can take this device and pair it with up to 11 others, and find your friends wherever they are in the world”. Something that could be as relevant to theme parks and ski resorts as it is to music festivals.

Ryan cited Songspace, which she thinks is doing a good job around data organisation in music, while Cheung picked Shazam – a company which just finally got its exit (to Apple) after what Haynes described as “a long road” for its investors.

Should startups be looking to labels as strategic investors? “I would really put caution into putting too much energy into closing a deal with a label, because that takes a long, long time,” said Patel. It tends to be more family, friends and early-stage investment funds.

Ryan provided some advice for startups too, as they mull whether to work with music companies. “Making sure that they have the capacity. For strategic value: if somebody’s not just throwing money at you to fix your problems, they’re going to have to have the capacity to actually help you with your operations,” she said, adding that “there’s only so much heavy lifting that we can do” – so a company like TMWRK also picks its partners carefully. She reiterated the advice for startups: “Make sure that they actually have the operational capacity to be a strategic investor.”

The panel were asked if they’d invest in a technology that revitalises radio. “I probably wouldn’t, it’s a little out of our wheelhouse: that tends to be more of a media/broadcasting company,” said Patel. “Radio still can have its niche pockets with a very very loyal fanbase, but at the end of the day, it’s well beyond the scope of a technology investment: there’s no IP behind it.”

“They’re actually really strong businesses with decent margin, and it’s quite easy to grow that niche audience. But are they going to be the next Shazam?” said Haynes. “As an institutional investor, that’s the challenge with these niche businesses.” In other words: if an investor puts $100k into a startup, they want an exit in three to five years, rather than a longer, steady flow of annual dividends for a much longer period.

Stuart Dredge

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