Starting a startup then getting funded is always a good news to share with the public (You may not want to reveal the exact amount of the funding, though). But for music startups, at least in China, the fundraising status seems a highly classified information.

No.1 rule: don’t tell people you are funded, which is what I’ve been told by several music startups.

The reason sounds simple. Usually startups when they starts don’t have money to pay for the license fee, so most startups have to play with the pirated music content. The music publishers know that they will get little or even nothing if they sue the startups for copyright infringement. But if they know you have extra money in pocket, they will not let you walk away easily. “The licensing fee is now an important revenue source in digital music industry.” a startup founder, who has years of experience in music industry and recently founded a mobile music service, said so.

People love digital music and look forward to using new music service, but the copyright licensing is killing the startups who want to innovate. In China, I heard that Xiami, a very popular online music site is burning out of money. And another ‘good’ example of this is 9sky which might be the first online music site. 9sky was founded in 1999 and started as a free pirated music download site. The company actually was doing quite well when playing non-licenced content (good revenue from ringtone download etc). Ever since it raised some venture capitals they started paying a significantly huge amount of licencing fee to the publishers, things are changed. A large portion of capital raised went to the publishers. Copyrighted music is good, but it also brings a huge burden to the company.

And maybe this is not just about China. GigaOM recently reported that the music service Wahwah.fm is killed by license costs.

Online digital music service is expecting that users can pay to cover some costs for the licensing, but in China this is no working. Catherine Leung, the ex-general manager of Baidu Music Entertainment dept. is right: For the music entrepreneurs, China is still in a “Wild Wild East” state.

The digital music industry has a bright future, we know that, but how far is it?