David vs Goliath, elevator music edition: Overhead.fm wants to take Muzak's business
In high school Stephen Hebson worked at a tiny coffee shop where he discovered what every retail store, big or small, learns: That you must pay royalties if you want to play music in the background. Shops can choose to pay royalties directly to the three performance rights organizations (ASCAP, BMI, and SESAC) but it's cheaper and easier to pay for a service like Muzak which provides well-known tracks for a monthly fee. It's not a terrible system, but it's woefully stuck in the past. Muzak requires a longterm contract along with a physical piece of hardware that must be installed at every location. And because the music doesn't stream over the Internet, it can't simply be accessed from a phone or laptop.
Later when Hebson was an intern at the legal department of ATO Records, it all clicked: There needed to be a music streaming service for businesses that covers licensing fees, but that is as easy to sign up for and use as Pandora or Spotify. That's when he got the idea for Overhead.fm.
"Still in 2012 no one was delivering this over the internet which struck me as kind of crazy," Hebson said.
Right now, Overhead.fm has found the most success with smaller mom and pop stores. Although Muzak's product is more difficult to install and use (it doesn't even have a mobile app), Overhead.fm faces the same challenge all enterprise startups face when it comes to incumbents: Sales.
"Muzak has an old school sales model with big regional sales teams that are very actively going after these businesses, cold-calling," Hebson said.
That said, the industry Hebson wants to disrupt is hardly stable. In 2009, Muzak declared bankruptcy and two years later sold for $345 million. One of its biggest competitors, DMX, sold to the same company in 2012. "The big players are going through consolidation," Hebson said, which gives his company an opportunity to stand out.
One factor potentially limiting Hebson's market is that many businesses, especially the smaller ones Overhead goes after, simply do not pay licensing fees, putting on records or a personal Spotify account at stores. ASCAP and BMI have reps that visit stores on busy commercial streets and ask the shop-owners if they pay for licensing. But even when ASCAP catches a business avoiding licensing fees, usually the only consequence is a series of cease-and-desist letters. Certainly if a business continues to break the rules for a long period of time a lawsuit may follow. Roscoe's Chicken and Waffles in LA faced one such lawsuit. But it's easy for many small businesses to fall through the cracks and get away with not paying.
That said, for the thousands of businesses already using an old-school service, Overhead.fm is a pretty attractive alternative. It certainly beats elevator music.
[Image courtesy avlxyz]