As the recession continues to sweep through the entertainment industry, another on-demand music company files bankruptcy. Playlist, a site which hosts on-demand music filed Chapter 11 bankruptcy with $24 million in debt from unpaid royalty payments to major record labels.
Playlist, a site which hosts on-demand music for users to share and generate playlists, is mired in debt. The company owes more than $24 million to major labels and $1.68 million to indies in royalty costs. Additionally, its bandwidth bill alone for providing free online streaming comes to $803,470–not exactly a sustainable financial picture.
After settling royalty lawsuits with Universal, WMG, RIAA and nine other labels throughout the year, Playlist was not able to pull itself out of its financial rut and hopes to restructure its debts in Chapter 11 bankruptcy. But it may have some trouble finding bankruptcy financing because the music industry has been unable to turn on-demand music streaming into a profitable business model. Investors specializing in bankruptcy exit financing may be hesitant to sink their money into any company using a business model that even the largest players such as iTunes are shying away from. One of the requirements of having a successful Chapter 11 bankruptcy is that the business must convince current creditors and investors as well as possible bankruptcy exit investors that their business is in fact viable. But if the business model a Chapter 11 bankruptcy company is using is considered flawed or not viable, it could be nearly impossible to convince creditors and investors to stick with them over the long haul. This is one of the challenges that Blockbuster is facing if in fact they choose to file bankruptcy and it will probably be a challenge for Playlist as they work through the bankruptcy process.