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http://www.digitalmusicnews.com/stories/062007money/

High-Priced Dealmaking Continues, Music Entrepreneurs Remain Perked
June 20, 2007
Paul Resnikoff

The recent $42 million acquisition of Pump Audio follows a string of high-priced deals involving music industry startups, and that is energizing entrepreneurs. Recent examples include the massive, $280 million purchase of Last.fm by CBS and a $25 million funding round involving recommendation startup MyStrands. Heavy rounds tied to CD-swapping service Lala and ubiquity play Slacker are also generating excitement. "There's a lot of liquidity, and not too many places to invest the money," said one venture capitalist with ties to media properties. According to the source, investors are shying away from a sagging real estate market, an overheated stock exchange, and shaky emerging markets, and that is boosting valuations for media technology buyouts and financing rounds.

The influx is raising the energy level of nearly every entrepreneur in the space, and undoubtedly attracting fresh entrants. But according to one industry participant, the unforgiving process of Darwinian market selection remains ongoing. "The market is oversaturated right now," observed new media entrepreneur Grayson Brulte. "You can only have so many of the same thing. The best services in each category will rise to the top." Indeed, that has already happened in a number of arenas, including paid downloads, currently dominated by iTunes. Others sectors remain formative, including those tied to music-specific recommendation and networking.

But driving the train is a voracious and quickly-shifting music consumer, one that continues to shape new consumption models and boost fresh ideas. Meanwhile, the recent £44.5 million ($88.3 million) buyout offer for Sanctuary by Universal Music Group is aptly timed, especially given the reportedly massive levels of debt assumption built into the deal.