If I were Spotify, I’d be paying close attention right now.
Imeem, which was one of the first music startups to work out streaming deals with all four major record labels, is going to MySpace for a bargain basement price of $1 million in cash, according to TechCrunch. (Update: Sources tell us the acquisition valuation is closer to a range of $7 to 9 million. That’s $1 million in cash plus earnouts to retain key employees.)
Neither company is commenting on the deal for us, but MySpace chief operating officer Mike Jones posted a link to the TechCrunch story on Twitter. (Jones has since deleted his tweet, but not before it was retweeted by others.)
It’s an unfortunately familiar storyline. Founded by now 29-year-old Dalton Caldwell, Imeem was promising. When we first wrote about the company four years ago, it was a way of sharing data on your hard drive. Then it pivoted about a year later, and came out of nowhere to grab 16 million uniques a month with an ad-supported music sharing model. Warner Music Group sued them, then later turned around and offered their catalog in exchange for a revenue share — a move that was soon followed by Sony BMG, EMI and Universal. Warner also invested about $15 million in Imeem too.
The terms of the revenue share deals, however, were onerous. Even now, they can start at around a half-cent per song played. Under those conditions, you have a bit of a Goldilocks problem. Too few users, and there’s too little ad revenue. Too many, and you rack up debt, not to mention lawyers. It’s hard to say whether a right balance exists. (In fact, it may have been a bit foretelling — but Imeem bought Napster founder’s Shawn Fanning’s flailing music startup Snocap early last year.)
So as costs rose, Imeem laid off about a quarter of its staff last fall and and hired investment bank Montgomery & Co. for sale advice. Warner then wrote off $16 million of its investment in Imeem this spring. A sale at this point would be better than shutting down entirely — Imeem’s employees, some of whom have more than a decade of experience in the industry, will find a buyer that has refreshed its focus on music. (Shareholders may feel otherwise.)
It’s unclear whether Imeem’s service will continue, because its licensing agreements terminate under an acquisition. It will also retain some of the cash and assets it has on hand to pay down the debt it accumulated.
Online music is littered with the dead carcasses of many startups. This one probably won’t be the last.