Imeem's Pain Shows How Difficult It Is to Be a Digital Music Site

Sam Gustin writes: The digital music space has always been tough. Now, thanks to increased copyright pressures combined with diminishing funding sources, it's become downright intolerable, with companies facing layoffs, and even sale options.

The latest potential casualty is imeem, the popular music-based social network. The company today laid off as much as a quarter of its work-force -- or about 20 employees out of 80 -- as it explores the possibility of a sale, according to paidContent.

Imeem spokesman Matt Graves confirmed the layoffs, saying: "Given the current economic climate, we decided to be proactive in cutting costs  -- before we needed to -- for the long-term benefit of the business." Graves declined to address the sale reports, saying the company doesn't comment on "rumors and speculation."

"We're focusing on continuing to grow our audience and business," Graves said, pointing to the recent launch of imeem's streaming music service for the Google Android mobile operating system.

But paidContent reports that the company has hired Montgomery and Co. to shop the company around to prospective buyers. Imeem, which boasts some 30 million registered users, is thought to be worth as much as $200 million.

It's hard to imagine what type of company might be in a position to shell out that much money -- in cash or stock -- at the present time, given the woeful economic climate.

But imeem's difficulty points to just how tough it is to succeed in the digital music space as an independent outfit. Start-ups that run afoul of copyright laws face are being squashed by the iron hand of the Recording Industry Association of America (see Muxtape). Others are drowning under the weight of the license fees they must pay the labels for the use of their catalogs (see Pandora).

Imeem has made an admirable go of it, by striking deals with all four of the major record labels. But faced with well-financed competitors like MySpace Music -- not to mention iTunes, the market leader -- as well as start-ups with innovative pricing structures, like Lala, many independent digital music outfits may find the environment too difficult to survive on their own.