There was a good post by Rafat Ali at paidcontent.org today.
The basic gist of the post is that music start ups such as iLike (just acquired by MySpace), Last.fm, Pandora, Slacker, Spotify and others are all challenged by two things (from the post):
1. “margins in music downloads are horrible for anyone without iTunes scale (and even that’s not growing rapidly), and that music labels are the choke point for most of the startups in the download space.”
and 2. for ad-supported music start-ups, “…we all instinctively know: too little ad money sloshing around for too many startups and the economics of ad rev share don’t work out well. Plus, there are too many interested parties trying to leech off money at every stage of the value chain for this to ever scale.”
I believe the conclusion from these observations is pretty simple: you can’t really make a good living as a music-oriented start-up by participating in the existing value/supply chain. A start-up must disrupt, disintermediate, or do better in some specific, repeatable, scalable capacity.