PASADENA, Calif.-Of all the losses suffered by the music industry, one of the biggest may be the fact that nearly all of the investors that once were building digital music services have moved on.
"There are not a lot of entrepreneurs involved in this space," said David Pakman, a music industry veteran and now venture capitalist at Venrock Associates.
MySpace Music President Courtney Holt (left) listens on as venture capitalist David Pakman (center) speaks at a panel on the future of the music industry.
(Credit: Ina Fried/CNET)By Pakman's count, there have been 109 venture-backed digital music start-ups. Fewer than five, though, produced a substantial return, he said.
"Investors lost a lot of money in this space," he said, speaking on a breakfast panel at the Fortune Brainstorm: Tech conference here. The loss for the industry, he said is that entrepreneurs have moved on to areas like Twitter and Facebook.
Those two services both have an application programming interface that allows anyone with an idea to connect to their service using generic terms. That, Pakman, said, is missing in music.
"What the music industry never encouraged or even allowed was building an ecosystem around its product," Pakman said.
For his part, MySpace Music President Courtney Holt said he thinks a big part of his opportunity is in providing new tools for music artists, building on MySpace's existing strength of helping connect musicians with their fans.
He also wants to make more of the "social music leaders" on MySpace.
"There are people at MySpace that curate music that have audiences that would rival terrestrial radio," Holt said. "I'm trying to figure out how I can give them more power."
Pakman agreed that such influencers are a key factor. "Bloggers are the music critics (of today)," Pakman said.
David Pakman, eMusic CEO
(Credit: eMusic)David Pakman, CEO of eMusic, is leaving the online music service at the end of the year, he said in an interview with CNET News on Monday.
Pakman said he is departing after five years at eMusic to become a partner at a venture capital firm. He declined to specify which firm.
An important part of Pakman's legacy at eMusic is that the company continues to exist. How many CEOs of digital music stores have been around for five years or longer? I can think of only one: Apple's Steve Jobs.
Pakman has watched stores from MTV, Microsoft, Sony, Yahoo, and AOL come and go. "We outlasted almost every other digital entity in the space," Pakman said. "We've proven the business model, growing the company by five times. I've had an amazing team."
That business model he referred to was based on selling music subscriptions to a niche market. Unlike Napster, or Yahoo's now shuttered music store, eMusic sold music in the MP3 format, which allowed songs to play on any digital music player.
Because the big music labels didn't want their songs distributed without copy-protection software on them, they shunned eMusic for years. The service carved out a niche by selling music from unsigned artists or those with smaller labels. Pakman's strategy has been vindicated now that the big recording companies have acknowledged erring in their MP3 strategy by embracing the format.
His relationship with eMusic remains a good one and he will have a role in helping to find a successor, he said.
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