The Silicon Bubble: Music Sites, Money, and Venture Capitalists
Posted April 30, 2008 — in Music News
The Silicon Bubble: Music site Hype Machine has a $10 million dollar offer according to ValleyWag. The Hype Machine is an MP3 blog aggregator.
Another music site called MOG received $2.8 Million in new financing from Universal and Sony according to VentureBeat. The site offer reviews, videos, music videos.
So far this year, venture capitalists have invested 58 million dollars into music tech companies. Check out the stats and the summary here.
Investors are throwing money around to these music related social networking sites with no guarantee. Even major music labels are getting in the ring and betting on these sites. Investors of these sites claim social networkers are the next generation of broadcasters and are successors to traditional radio.
Critics don’t understand how these sites can be successful on their own even though they talk multiple revenue streams led by advertising. What is the true sticker price for these sites?
Kelli Richards, president of the digital media consultancy All Access Group warns that investors may be disappointed by just how much revenue these sites can generate and compares the rich multiples to the kind of irrational exuberance that valued Facebook at $15 billion. “It’s too early in the game to say definitely what kind of cash flow, what kind of potential these companies are going to have,” concludes Perlson.
At the end of the day, we are going to have happy investors or just another bubble that is about to burst.
the labels aren’t investing for site revenues; they know these blogs are important for music-discovery; but once they own them, it seems the blogs credibility may be tainted, as they’ll be seen as ads for these labels’ releases.
Comment by bestman333 — April 30, 2008 @ 10:11 am
“the labels aren’t investing for site revenues; they know these blogs are important for music-discovery; but once they own them, it seems the blogs credibility may be tainted, as they’ll be seen as ads for these labels’ releases”
Exactly!!! It’s an investment where they can promote their product but any sales they hope to get will probably be lost when these sites start giving their product glowing reviews.
Comment by Universal Indie Records — April 30, 2008 @ 10:36 am
Yeah, at Burst we’re (a href=”http://blog.burstlabs.com/2008/what-does-viacom-see-in-hype-machine/”>stumped by the Viacom move. Makes no sense. At all.
Comment by Daniel Holter — April 30, 2008 @ 12:05 pm
Long day!
Link here : Burst Labs on Viacom and Hype Machine.
My bad.
Comment by Daniel Holter — April 30, 2008 @ 12:07 pm
I think this is a case where everyone knows that the future of music is on the internet somewhere. There’s 9 years of growth in both legal & illegal acquisition of songs that backs this up. This is a $15b industry, probably much more assuming file trading can be monetized… Ten years from now Wal-Mart & Best Buy will be completely out of the game, replaced, in all likelihood, by some online company, whether it’s iTunes or iMeem or MySpace or something that comes totally out of left field. Perhaps the new record label really is the blog. Who knows? This is a lot different than the dot com bubble in that it’s not an industry being created out of thin air, it’s an industry that’s been around, just shifting to the interweb.
I think some of these investors have made poor choices, but it’s hard to say… so much relies on chance. You can have the best platform in the world, but if the only music you’re offering is high school solo acoustic acts & amateur grunge bands, you aren’t going to get any traction. Or you could have a mediocre or even crappy platform, but if you’re easy to find & the right bands sign up, you could take off. You can’t really foresee this viral growth, & so I think, in terms of venture capitol, things are playing out as I would expect them to. This is the nature of investment… there will be losers, but there will also be winners. No need to run around yelling that the sky is falling.
Comment by Jon Cole — April 30, 2008 @ 11:09 pm