This was discussed at yesterdays Music and Bits as well. I would argue that music startups still make sense, if they turn to music that has not yet been signed to traditional industry parties. Saves tons of money, opens up a lot of possiblities for (future) sustainability.
Overall, Caldwell’s talk isn’t going to be encouraging for anyone hoping to launch a music startup: at one point early on he says, “Every time a founder does a music startup, a likely-more-successful startup dies”. But Caldwell’s message doesn’t seem to be that launching a music startup is completely impossible. Rather, it’s just incredibly hard, because you have so many things working against you. And he wouldn’t recommend it.
The bottom line for fledgling startups: these record execs need to discover businesses that will generate hundreds of millions of dollars, and they can’t take gambles with a bunch of startups that want to gradually build up a user base and focus on monetization when they (probably never) hit critical mass. They’ve tried that, and it hasn’t worked out for them.