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Digital music suffering from entrepreneur drain

With few digital music start-ups producing meaningful returns, many investors and entrepreneurs have moved on, leaving the industry largely to fend for itself.

PASADENA, Calif.-Of all the losses suffered by the music industry, one of the biggest may be the fact that nearly all of the investors that once were building digital music services have moved on.

"There are not a lot of entrepreneurs involved in this space," said David Pakman, a music industry veteran and now venture capitalist at Venrock Associates.

MySpace Music President Courtney Holt (left) listens on as venture capitalist David Pakman (center) speaks at a panel on the future of the music industry. Ina Fried/CNET

By Pakman's count, there have been 109 venture-backed digital music start-ups. Fewer than five, though, produced a substantial return, he said.

"Investors lost a lot of money in this space," he said, speaking on a breakfast panel at the Fortune Brainstorm: Tech conference here. The loss for the industry, he said is that entrepreneurs have moved on to areas like Twitter and Facebook.

Those two services both have an application programming interface that allows anyone with an idea to connect to their service using generic terms. That, Pakman, said, is missing in music.

"What the music industry never encouraged or even allowed was building an ecosystem around its product," Pakman said.

For his part, MySpace Music President Courtney Holt said he thinks a big part of his opportunity is in providing new tools for music artists, building on MySpace's existing strength of helping connect musicians with their fans.

He also wants to make more of the "social music leaders" on MySpace.

"There are people at MySpace that curate music that have audiences that would rival terrestrial radio," Holt said. "I'm trying to figure out how I can give them more power."

Pakman agreed that such influencers are a key factor. "Bloggers are the music critics (of today)," Pakman said.