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Snocap lays off staff: another music retailer crushed by DRM

snocap stopWhen Snocap was founded in 2002 it was supposed to become Shawn Fanning’s coming of age; the original Napster founder’s arrival into legitimate music distribution success.  If peer to peer Napster was to be his fame, Snocap’s music licensing service was to be his cash cow.   Over four years, dealing with the complexities of selling music online,  that dream become less and less realistic.   Over the past few months, it began to look like it could finally be possible.  With DRM Restrictions waning, iPod owners which represent the majority of the digital music buying public, were starting to become potential customers.  They no longer have buy all big label music on iTunes.  EMI, and to a limited extent, Universal Music, are selling music without encryption.  Through deals with big players like MySpace (September 2006) and start ups likes Imeem (June 2007) were giving Snocap distribution.

Now it looks like those little successes were too little too late. The market isn’t maturing fast enough.  Like Virgin, Sony, Anywhere CD and other’s who have recently shut down online music ventures, competing with Apple’s iTunes in a world where much of the music sold is restricted is proving a costly business; one not worth being a part of.

Friday, Snocap laid off nearly 60% of staff and acknowledged they were looking for a buyer.    Though the company reports 80,000 artists are using Snocap’s technology to sell directly to fans through MyStores, the revenue isn’t there.  Even with 20m unique visitors in September, it’s not enough.  The business model just doesn’t work today.  Maybe in the future, when labels beyond EMI are willing to sell DRM Free (which translates to music portable enough to play on any MP3 player) that will change. But time is money and Snocap doesn’t appear to have enough.

Snocap’s CEO Rusty Rueff said in an interview with CNET’s that things weren’t happening “as fast as we expected.”  He went on to add, “it took a lot of work and a lot of capital to bring this capability to market.  But it’s that time when we are asking ourselves what’s next.  And we think it’s probably best for us to be part of a larger entity.”

The company said the layoffs were necessary to make the company more attractive for buyers.  In translation, that means they needed to cut their burn-rate and expenditures.  Probably, to keep the lights on and buy time to sell what’s left, even if it’s pennies on the dollar.


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