Growing a Startup in Music Streaming: Tips for Entrepreneurs

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How hard it is to build a music startup? What can you learn from the journey that includes surviving a death valley, attracting 1 million users and a huge corporate partner but still deciding to close the company? Vlad Vernigora, Founder of MusicSense, Russian – Danish music startup using AI for playlists recommendation, is sharing with Sterotheque readers the insights of entrepreneurship in the industry.

The History of the Startup

In 2011 Vlad and his team started developing a service called 10Tracks. The service allowed you to save, keep, and listen to music in the cloud. It was very innovative for the time (no Apple Music or Yandex Music back in the day, Spotify still at the development stage and heavily unprofitable). As for the business model, it was simple and clear: the user received up to 2GB for free and paid a fee when he exceeds the limit. It took a lot of effort to prepare and settle all the music licenses and the release of 10Tracks was already planned. But just before it Google Music – the development of which was kept secret – was out.

However, Vlad’s team launched 10tracks quite successfully but found it impossible to compete with Google Music. The startup decided to pivot and offer music recommendation service under the name of MusicSense. The algorithm behind it was also new: it analyzed music from 40,000 radio stations and generated music suggestions taking into account your location, music library, and other data. It means that if you live, let’s say, in Tel-Aviv and like Nirvana, the application would build a playlist with tailored recommendations based on the analysis of radio stations around you.

Using AI for music recommendations

“I consider this technology of using AI to analyze radio stations music a breakthrough. Spotify, for example, was using a different approach, a collaborative filtration. Which led to the fact that local musicians and bands who didn’t have a big number of listens stayed out of the picture. And we realized that local DJs always know better all the local artists that are popular. At MusicSense we got a lot of reviews from the users who were happy to discover their local music scene” – says Vlad.

All in all, the startup attracted more than 1 million users, and in 2015 MusicSense got a partnership with Beeline – the third largest telecommunications company in Russia with 50 million users at the time of the deal. Nevertheless, the startup struggled to be profitable and the team decided to stop its development (however, the service is still accessible).

Insights for the 2020 Music Startup

“I learned so much while developing the music startups and this experience absolutely helps me in my current projects like Warefly, a digital product studio. The industry is highly competitive so you learn to move fast. However, when someone asks me advice upon starting a music startup, I try to talk people out of it – because it’s a very, very tough market. It’s very difficult to monetize music streaming services and make enough margins”.

Here are the valuable insights for current or potential music startup founders about the industry:

1. The extremely high entry barrier for startups in music streaming

The procedure of acquiring music licenses is much more expensive and complicated than it seems at a first glance. A startup faces massive upfront payments and the process is very bureaucratic. “5 years ago streaming was still something brand new for those industry actors responsible for music licensing. It also turned out it takes you ages to clear music rights”, says Vlad. The industry is very conservative with many hidden pitfalls. Many companies selling music licenses happen to have only 50% or 100% rights in some of the territories instead of 200%. Moreover, it’s a full-time job to manage the acquired music collection.

2. Tough chances to compete with the giants in B2C.

The music streaming market is pretty much an oligopoly dominated by such heavy competitors as Spotify and Google Music. It seems exceptionally hard to compete with their resources or even sell some of your technology to them. “You need B2C model for user acquisition but you can only make money with B2B” – comments Vlad.

3. Find creative ways to acquire users if you don’t have enough budget.

The 2 most important components for any application regardless of the industry are social engagement and virality. MusicSense offered all the possibilities to share, invite friends, and integrate with social media.

Vlad shares that you can invent a lot of unconventional ways and lifehacks to attract users. And keep in mind that Facebook ads were way more expensive 5 years ago. For example, the startup was parsing twits “#nowplaying” on Twitter. The team checked music people were listening to at the moment and suggested the playlists they might also like. MusicSense processed around 1 mln twits like that and got about 10 k users. Different collaborations, like selling white-label, also help a lot.

4. In order to grow a music startup, you need a strong product first.

No magic! A general principle applies in any industry: in order to succeed, build a strong quality product. “I still remember that we discussed launching a streaming platform for short videos with the possibility to add music to the video. But then we discarded the idea because we decided it was not promising enough. However, I doubt we would have made such a successful application as TikTok – they have a very cool product”.

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