A requiem for last.fm?
I certainly hope not but as I commented on Eric’s blog, I must admit to being disappointed and somewhat anxious upon hearing that they have sold themselves to CBS. This anxiety comes both as a customer and as an admirer and believer in the paradigm-changing potential of their platform. Ironically, after having used last.fm over the last year or so, last week I purchased a 12 month premium subscription, primarily to have access to “my radio station” (to listen click the big red button on the right sidebar.) And although it has proved to be a bit rough around the edges, I began to see that if they got their links to buy music and tickets (to events) right (api with iTunes store please?) it would become the natural way for me to purchase live and recorded entertainment - the revenues stream was starting to look potentially very real. Now let me say straight off that I have no visibility or view on the valuation, but it seems intuitive that it is likely to look generous based on current financials, and in absolute terms it is hard to argue with last.fm’s founders and backers taking the money; or put another way, I admit it is easy for me (with no financial exposure) to sit here and second guess their choice. However, if the motivation was financial security, locking in the win so-to-speak, I would posit that in today’s world there are a myriad of innovative financial options generally available to provide liquidity for owners beyond the traditional digital choice of IPO or trade sale…
However, putting financial considerations to the side and coming back to my two sources of anxiety…
As a customer, I just hope that in the medium term they are allowed to continue to innovate and especially that they are able to continue to treat their customers with respect. As partners. That may seem self-evident, but the track record of the music industry in this regard does not inspire much confidence. Indeed it is testimony to the compelling and real value of creative artists and their product, that the industry continues to function at all. If music truly was a ‘discretionary’ good, I suspect the industry would have collapsed on itself as customers disgusted by the convoluted and adversarial service they are asked to endure simply said ‘enough, I’ll take my money elsewhere…’ There is also the more universal (non-sector specific) issue of the inability of large organisations to avoid suffocating innovation.
That said, if last.fm can at least avoid going backwards, I’ll continue to be a happy customer ‘as is’, at least until something (much) better comes along. More disappointing from I guess what could only be described as a philosophical point of view, is the risk that the potential I thought was embedded in their approach to really change the way the music (and possibly other forms of art and entertainment) business worked. (Which also is the reason I think this post is germane to The Park Paradigm just in case you thought I was wandering ‘off script’ yet again!) The line of thinking I want to pursue probably originated with a series of discussions a couple years ago with Malcolm, who helpfully articulated Malcolm“>some of this on his blog:
As I have mentioned before I think the future of the industry as well as obviously being digital in nature is in the collaborative and personal spaces around such as last.fm and myspace. I think this particular future inexorably leads to new artists being initially funded by members of the collaborative communities who will, for their funding, be returned a share in future profit streams. This particular vision of the future is clearly not in the best interests of EMI: distribution will be handled by these spaces and the online music stores (distribution becomes essentially free as does the cost of production of each unit) and PR is also free as it is handled by the members of these communities and will be handled in their own interests. (PP note: viewed from this perspective, a cynic would say the CBS deal is defensive in nature: buy them before they can hurt you. A cynic. Not me.)
Clearly I have markets on the brain - for better or worse - but the potential I saw in last.fm was to use it’s brilliant organizing and community building software to ultimately allow the fans - the consumers of music - to become owners as well. And I’m not talking about CDs or MP3s, I’m talking about equity in the artists themselves. Creating a more efficient market in which to deploy capital (production, promotion, creation…distribution (digital)) backing artists, capital that in the current paradigm is effectively only available via a small-ish cabal of music companies. Think of it in terms analogous to replacing turn of the (20th) century JP Morgan (big universal banks with an oligopoly on capital allocation) with the turn of the (21st) century securities markets and you might see what I’m driving at. Too late tonight to go into detail, hopefully the point is somewhat clear.
In any event congratulations to the last.fm team on creating a fantastic product and here’s to hoping I’m sadly mistaken on their future prospects in their new home.
June 1st, 2007 at 6:12 pm
Sellaband are doing this. Looks like they’ve now ‘issued’ 5 artists with $250k of equity investment from fans and have pledges for hundreds of thousands of $ more.
http://www.sellaband.com/search/
Will be interesting to see whether these ‘disruptors’ cash out to a major eventually too…
June 2nd, 2007 at 2:55 pm
Thanks Stu, had a quick look. Sort of the right idea, but imagine it done properly with a discovery engine like last.fm and a proper ‘zopa-like’ equity underwriting platform.
June 2nd, 2007 at 3:19 pm
Sean - am wary also. Have loved last.fm, and would like to continue doing so, but it’s hard to see the same passion for “different” now that it belongs to “same-old same-old”. Maybe you should have approached them with your idea sooner - I like the zopa model for fan-backed music creation.
June 3rd, 2007 at 10:34 am
Just a question: has anyone come across any stats on how lastfm.com is actually used? i.e. do people “discover” other people with tastes just like them? is there/has there been value in that in terms of new music bought? Don’t get me wrong, I love LastFm, I have it on a lot. But I’ve never done anything but listen the the music.
June 3rd, 2007 at 11:21 am
That certainly would be very cool. The discovery engine piece is an interesting question, since I think the accuracy of last.fm’s/amazon’s recommendation algorithms vary with the volume of listening/transaction data they have on each artist/product, and perhaps (almost by definition) not enough people listen to new/unsigned bands to generate reliable recommendations algorithmically? Not sure, just speculating.
The default discovery engine on sellaband seems to be the number of parts sold, so well financed bands have a head start. Interesting to see that since my original comment another artist’s issue has become fully subscribed, so if they are financing one act every few days that seems a pretty good rate. The next nearest artist is at $28k at the moment, will be interesting to see how long it takes her to get to the magic 50.
To your other point above though, about a ‘proper’ underwriting platform, it’s interesting that sellaband have chosen to use non-financial terminology for their process i.e. ‘believers’ rather than investors and ‘parts’ rather than shares. I’m not sure if this is for legal/regulatory reasons or because they want to target / attract investment from people that would otherwise be turned off by the jargon… am assuming it’s the latter. Either way it’s pretty impressive that individuals (like this guy: http://www.sellaband.com/believer/walter-braunsteiner/) are personally investing thousands of $ in individual artists, and actually developing some kind of relationship with them in the process (see the obviously grateful artist feedback).
[as an aside I also wondered whether weatherbill’s choice of terminology e.g. ‘contracts’ rather than ‘policies’ was deliberate and whether you thought it was a potential barrier to entry to people comfortable with the concept of insurance but without any experience (and perhaps some fear) of financial derivatives..?]
Anyway, this is all great food for thought for what other disruptive community-based financing models there could be (book publishing? other kinds of talent development e.g. actors, photographers, footballers?), who their target issuers/investors are and what it takes for them to be successful…
June 3rd, 2007 at 8:03 pm
Paul - agree it would be interesting to have more insight into how people use last.fm; until a couple months ago, I was like you, just listening to the music, occasionally discovering a new song or artist, but not a paying customer. That said I was using more and more parts of the service, one that I particularly found useful was the Events listings. Although the ecommerce user experience for someone wanting to buy a ticket, or album needs work… the My Radio function was what catalyzed me to subscribe. Would love to see the financials too.
June 3rd, 2007 at 8:19 pm
Stu, I’m loathe to discuss all the details here as I don’t want to give away all the trade secrets for my next great venture(!)
Re the non-financial terminology, I definitely am all for NO jargon, so this is fine. My point was more to suggest that a model where the fans get real equity in the artists would be even better; though perhaps I misunderstood how sellaband works. Re-reading there terms it’s better than I thought but I don’t like the sellaband ‘lock in’. Of course if fans were buying some % of future revenues more broadly defined, it could quickly become a legal and operational nightmare (record keeping, audit etc.) However I would suspect there is a middle ground that would consist of clearly articulating easy to monitor cash-flows and effectively selling claims on these.
As to Weatherbill’s choice of language I believe (but am not 100% sure - you’d have to ask the lawyers) that this is a regulatory issue - the company trades derivatives and is not an insurer. Of course the reality is this is all just semantics and the regulatory apartheid is imho pretty anachronistic in this day and age.
July 10th, 2007 at 3:57 pm
[…] And why I was so sad to see last.fm absorbed into the maw of CBS (even if I can totally understand why the founders and investors might have taken this particular nickel…) and why I can only hope it turns into a sort of reverse take-over in the end. (I’m thinking of a music industry version of O’Connor into SBC into UBS…) […]
May 2nd, 2008 at 11:26 am
[…] You may recall that in my earlier post, I mentioned Farecast as one of a variety of companies innovating intelligently in this space. This is a company that was on my “IRWIWHHTOTI” (I-really-wish-I-would-have-had-the-opportunity-to-invest) list (for reasons I hope would be clear to my regular readers…) Unfortunately, they have just sold themselves to Microsoft. Why do I say unfortunately? (1) There is now no chance to invest in or buy the company. (2) Microsoft has a long and not-so-illustrious reputation for buying really interesting and innovative companies (good) and then having their own big-corporate antibodies attack and often kill said innovation and energy (not so good.) (See here for more thoughts on Microsoft.) I hope this doesn’t happen to Farecast (in the same way I hope CBS won’t kill last.fm) but let just say I’m cautiously pessimistic. I am entirely sympathetic to the founders - liquidity is important (you can’t pay mortgages with ‘potential’ upside) and understand how the structural constraints of the mainstream VC business model drives the logic of this kind of exit. But the combination of these factors leads from time to time to what I would consider excellent opportunities to deploy smart, unconstrained capital. Since this is something I personally have limited amounts of (alas) I will be working to convince others of the merits of this view, with the goal of being able to act on a small number such opportunities when they arise in future… […]