[Corrected 10/14/19, 3:36 pm CT. See below.] The music streaming wars are far from over. While big players like Spotify, Apple, and Amazon fight to make their music apps the go-to option for listening to the latest hit tracks from well-known artists such as Beyoncé, Drake, and Mumford & Sons, young startups still see room in the market for new services to help people discover and share music.
Like with any consumer tech product, the question is whether these upstarts have what it takes to build a loyal following—and a sustainable business—before the money runs out or they get crushed by much bigger competitors.
One young venture giving it a shot is LÜM (pronounced loom, thanks to the umlaut), which stands for “Live Undiscovered Music.” The company aims to help fledgling, often-neglected musicians build an online fan base and, if successful, move into live shows and other areas of the industry, and even “graduate” to other streaming services, says Max Fergus, LÜM’s 23-year-old co-founder and CEO.
Fergus describes LÜM as a music discovery and streaming platform for the “next generation.” The app’s evolving interface, a bit of a mix between music-streaming service Spotify and photo- and video-sharing app Instagram, lets users control what they hear and then promote performers they like. The mobile app is free, and a desktop version will be developed soon, he says.
Part of what makes LÜM interesting is the startup isn’t trying to build the next popular music app from a big coastal city like New York, San Francisco, or L.A., or even a music hub like Nashville. The company is based in Madison, WI, a Midwestern college town that has a small technology cluster that often punches above its weight, but is known more for healthtech startups than consumer mobile apps.
When Fergus and his co-founders—who are all in their 20s—were getting ready to form the company last year, he says they debated if it made sense for them to start a music discovery and streaming technology company in the Midwest. [An earlier version of this paragraph misstated when LÜM was formed. We regret the error.—Eds.]
“We wondered if we’d have to be on the coast,” says Fergus, a recent graduate of the University of Wisconsin-Madison. “And we talked a lot about what resources there are in Madison. But it turns out this has been a phenomenal place for us to begin because our advisors and mentors have been great.”
Although a move to a bigger city might be in the offing down the road, LÜM has been able to get some initial traction in Madison, while forging connections with coastal investors. (More on that in a minute.)
It helps that Madison and the Midwest are filled with artists who are talented, yet often relatively unknown, Fergus says, as well as plenty of young music aficionados who are “eager to sift through a lot of songs to find the gems and then share their opinions, engage, rank, and tag music with their friends and peers.”
Fergus says he and his fellow co-founders started LÜM not because they are musicians—in fact, Fergus says he can barely carry a tune. Rather, he says, it was because they discovered an area in need of an overhaul: in spite of the demand for new music, only a tiny fraction of artists has had success building big followings on current platforms.
Moreover, he argues that the existing music streaming financial model is flawed, which means even behemoths such as Spotify (NYSE: SPOT) have yet to make money. (Spotify went public in April and is currently valued around $21 billion. It reported a net loss in its most recent quarter, although it’s getting closer to profitability.)
Fergus says too many musicians still believe they need to first be picked up by a label before they can be successful.
“They think you need to be signed by an artist management company, have someone do your social media account, all of your branding, etc.,” he says. “Once you have your whole team in place, then you begin to grow your fan base and force your way into the industry. But the truth is that isn’t the way it works anymore because there are so many people who want to be artists. You need to prove that you have a legitimate fan base first.”
That’s where LÜM comes in, he says.
“We give artists the tools to use their communities as a catalyst for their own growth, so that they can take the next step in their careers,” Fergus says. “We use music streaming as a means to an end to help these artists get their voices out and to give them a platform to advocate for themselves.”
Of course, there are other options for independent or lesser-known musicians to share their music and connect with fans, including SoundCloud and Bandcamp. It’s too early to tell whether LÜM’s model will catch on, but it has started to win over some people.
Jacob Jones, a “pop-indie” singer/songwriter and music producer who goes by the stage name Pelham, says he is a big supporter of LÜM and began working with the startup even before its beta launch in late August.
“I was one of the first artists to do its beta testing,” says Jones, whose songs have gotten nearly 3,000 plays on the LÜM app. “Now my company, Meteor Base, has signed on as an official business partner. So, I use the app as an artist, and my company uses it to communicate with other musicians and work on collaborations, meet new fans, and promote my company as a service that works with artists and musicians.”
He says LÜM has expedited that whole process.
“I could have done all those things in other ways, but it would have been more of a hassle,” says Jones, who grew up in Madison and attended the University of Wisconsin-Whitewater for several semesters before moving to Minneapolis to launch his career.
Fergus says all of LÜM’s music content is uploaded by artists, though fans can post photos, other media, and comments about their favorite musicians. He says the startup is diligent to make sure the music available to stream on its app is original and doesn’t violate any copyright or ownership laws.
“[Copyright] legality is a moving target, though, which is why we’re working with some of the same lawyers that represent Spotify, Pandora, and YouTube,” he says. “If you are going to enter this space like we are, you have to make sure you are covering yourself and following all the regulations.”
Fergus says LÜM isn’t generating revenue yet, and he isn’t sure when LÜM will turn a profit. But if it does, that income might come from selling data collected from users to “A&R companies, talent management agencies, record labels, radio stations, and any other firm that is interested in finding the next big artist or genre before it is even on the forefront of the music scene.” That might not sit well with some users, so Fergus says the data will be aggregated and anonymized, so buyers won’t be able to access private, individual user information.
Of course, generating data buyers’ interest will require attracting a healthy number of users. Despite spending almost no money on promotions so far, other than a minor effort on the UW-Madison campus, Fergus says LÜM has picked up more than 6,000 users during its beta testing period that began in late August, including both listeners and artists. He says he can’t yet quantify how many users LÜM would need before companies would want to buy its data.
“The key for us will be user retention and their activity on the platform.” he says. “Once we have solid traction in those areas, bigger players will naturally become interested. With that being said, we had companies reaching out to us about data before we even launched our beta product.”
Another area where he hopes LÜM will make money is “gamification.” Amazon-owned Twitch, which has an estimated 1 million online viewers, lets users cheer and back e-sports gamers and celebrities. This past summer, more than 600,000 viewers watched Twitch master Tyler Blevins and rapper Drake play video games.
“We’ve looked at companies such as Twitch and Tencent, [a China-based firm that runs a music streaming service], to create an application around social music discovery that benefits and engages artists and fans,” Fergus says.
The idea would be to create a marketplace on the app where people can earn “badges and virtual goods,” Fergus says. “For the fans, it’s really great because they’ll have the opportunity to not just support artists, but become influencers and tastemakers,” he says. But the company’s gamification play is still being fleshed out, and it’s more of a long-term goal for LÜM, Fergus adds.
The company has gotten this far with a small team and a relatively tight budget. LÜM has raised about $500,000 from investors, including Fergus’s father, Gregg, who helps run a startup incubator on the East Coast and is a board member at Butterfly Network, which makes mobile ultrasound equipment and has raised at least $350 million in venture capital. (Fergus’s 27-year-old brother, Jake, serves as LÜM’s chief marketing officer.)
The company got an early boost when it won the local “Pressure Chamber” startup pitch contest in August, which earned Fergus a trip to California’s Silicon Valley in October to meet with venture capitalists and other potential backers. LÜM also scored a consulting package with the Lindsay, Stone & Briggs advertising agency in Madison.
“We didn’t expect to win” the pitch contest, Fergus says. “We were the youngest company ever to make the finals. Our ages range from just 20 to 27. But we took the win and ran with it.”
With the Pressure Chamber victory, the startup gained credibility, good press, and a positive buzz at the Forward Festival, an annual tech and entrepreneurship gathering in Madison that attracts more than 5,000 attendees, which took place at the same time.
Although Fergus didn’t come back to Madison from his October trip with any commitments from Silicon Valley venture capitalists, he says the visit laid the groundwork for potential future investments.
“It made us smarter, helped us refine our business plan, and made us understand the research and analysis we’re going to have to do,” he says. “When it comes time for our Series A round of $3 million to $5 million in 12 to 18 months, I know the first calls I’m going to make.”
[Top photo of Fergus courtesy of LÜM.]