MOG will open up for business in conjunction with Telstra, an Aussie telco; a partnership will let Telstra subscribers add MOG’s monthly service by checking a box on their billing statement.

These kinds of packages aren’t new, and several services — including Spotify in Sweden, Deezer in France and Rhapsody with Metro PCS in the U.S. — have been able to juice their subscriber numbers using them.

But it’s worth reminding people that the subscription music industry places a whole lot of faith in this model, and that lots of people think the subscription music model won’t really get mass adoption unless big service providers like Comcast and Verizon give it a similar boost.

The problem with that line of thought: Lots of digital media services have been trying to get the Comcasts of the world to add them into their system for a very long time. And with one brief exception — when Comcast and Rhapsody linked up — that hasn’t happened.

Still, they’re all trying quite hard to hammer out new deals.

Speaking of new deals: When is MOG going to close its deals with headphone maker Beats? I wrote about this one three weeks ago, and was told the deal was in progress but not closed. People familiar with the (proposed) transaction tell me that’s still the case. We’ll check back in a few weeks …

Beats’ majority owner is HTC, the Taiwanese cellphone maker, which put $300 million into the company last year.

MOG is one of several subscription music services that have cropped up in the last year, most of which offer some combination of free music and a paid version that works on mobile phones like iPhones and Android handsets. With the notable exception of Spotify, most of them have struggled to gain much traction.

MOG CEO David Hyman has told reporters that MOG has 500,000 active users, but he also told reporters last month that MOG was not trying to sell itself.

MOG’s most recent push to acquire users has been through Facebook and its “frictionless sharing” program, which is supposed to help digital services acquire users. Facebook-data tracker AppData says that MOG has 130,000 people using the service via Facebook at least once a month, though it’s possible that Hyman has several thousand other users that he’s acquired outside of the social network.

Business Insider reported MOG’s sales talks yesterday.

I don’t have a price on the transaction, and I’ll be very curious to see where it ended up. MOG raised a reported $25 million over the course of its corporate history, and $15 million in the last few years, as it bolted a music service onto an ad network, its original business. Last spring, it went looking for another $25 million to $30 million, and apparently ended up with this deal instead.

I’m assuming that Beats and HTC aren’t very interested in running a Web-based advertising network, so the real business they’re buying here is the music service. The subscriber base won’t be material, say people who have looked at the MOG deal recently — instead, Beats’ main interest will be in MOG’s deals with the major music labels, and the front end of the music service it has built.

If Beats wanted to hammer out those deals and build that service on its own, it could certainly do that (particularly since Jimmy Iovine, the powerful Universal Music Group executive/producer, is a Beats investor, along with Dr. Dre, whose name graces the product itself). But buying MOG will save it time. How much is that time worth?

Yet here comes one more, via Rara.com. The U.K.-based company launches in 18 countries today, selling a streaming music service to an audience that either hasn’t heard of streaming music services or is baffled by the existing ones.

The basics: Rara is run by Rob Lewis, the founder of Omnifone, which powers music services for the likes of Sony and Research In Motion — as well as Rara. For $5 a month, users get unlimited, ad-free streaming music delivered via the Web; for $10, users get to take their music on the go, via an Android app (an Apple app is coming, Lewis says).

In other words, it’s exactly the same model offered by the likes of Rhapsody, and very similar to the one offered by Spotify. Except Spotify offers a free, ad-supported service as well.

So why bother launching another competitor? Lewis argues that:

• Existing music services are more complicated than they should be.
• Most people don’t use the legal music services that are out there.

True on both counts. Figuring out how to sync music across devices, or how to cache songs on your phone, can be difficult even for people who pay attention to this stuff for a living (cough).

And there are perhaps five million people worldwide paying a monthly fee for music. Which is many more than there were a few years ago, but a tiny number in the grand scheme of music listeners.

And, so … what? Lewis argues that Rara offers an incredibly easy interface, with plenty of preprogrammed stations for people who like music but don’t want to work for it. I haven’t used it myself, so I can’t argue with him on those counts. But I’m not sure about the notion that there are lots of people who would pay for streaming music, but don’t because it’s too complicated. I figure most people don’t pay for streaming music because they’re satisfied with the free options they have.

In any case, we get to find out now. Rara is launching with an assist from Hewlett-Packard, which is embedding links to the service on some of its PCs. It’s also offering a three-month trial for 99 cents a month.

Said strings: You have to visit a certain brand’s Facebook page, “Like” their page or jump through a similar hoop, and then pick your songs from a limited assortment of freebies.

But if you find one you like, you can download it in MP3 format. And it’s yours forever, and you can play it anywhere, anytime you want, on any device. Even a Zune!

Zero cents for a song is a pretty good deal for music fans. The question is whether Free All Music, which is making this possible, can turn it into a business.

The two-year-old start-up has been moving slowly as it tries to figure that out. In a cheap-money go-go era for start-up funding, it has raised a mere $1.7 million. New CEO Habib Khoury, who replaces founder Richard Nailling, says his company is “en route” to a proper Series A.

On paper, at least, the business model is a simple mashup of two gambits we’ve seen before: Marketers who buy music and give it away for promotions, and marketers who reward Facebook users for “Liking” them.

In this case, Free All Music buys songs from labels like EMI Music and Universal Music Group at the same wholesale price that retailers like Apple and Amazon get — around 70 cents a song. Then it works with brands like Budweiser and American Express to give the songs away via their Facebook pages. Free All Music charges the brand a CPM of $5 to $8, and says that spread should allow it to make money.

Free All Music is still missing distribution deals with two of the big four labels — Sony and Warner Music Group — and even if it gets them, it won’t ever be a free music service that’s going to battle the Facebook giveaways currently underway via the likes of Spotify, MOG and Rdio. Those services give you unlimited music on demand, but only via streaming. Free All Music’s giveaways are one-offs, just like a bank giving away a toaster.

But much cooler than a toaster. Here’s the Jack White/Loretta Lynn song I downloaded gratis yesterday, in exchange for giving Budweiser a virtual thumbs-up.

When the dust finally settles between the artists, labels, and distribution companies, everyone will finally realize fans are more valuable than recorded music. As traditional monetization models for recorded music sales slowly fade away, new monetization methods centered on the fan will emerge.

How do we know music will become free? The stats point to this trajectory. Total revenues for CDs, vinyl, cassettes, and digital downloads worldwide dropped 25 percent from $38.6 billion in 1999 to $27.5 billion in 2008, according to the International Federation of the Phonographic Industry (IFPI). The same revenues in the U.S. dropped from a high of $14.6 billion in 1999 to $10.4 billion in 2008.

As the stats show, sales of recorded music are headed one way — down. Sure, digital music sales have been on the rise in recent years, but they have only partially replaced physical sales, so the overall sales figures are still headed south. And it surely isn’t because people are listening to less music. It’s simply because the old adage holds true: why pay for something that you can get for free? In addition, artists, the ones with the talent, aren’t making money off digital sales. Artists get about $0.09 per song sold digitally on iTunes or Amazon. So for a million downloaded hits, an artist earns $90K. Subtract manager, lawyer, agent and other “fees”, and an artist selling one million downloads would barely make minimum wage off of the recording.

Source: CNN, Forrester

Already, there is a deluge of great (and legal!) sites providing free music — including Pandora, YouTube, Spotify, Grooveshark, MOG, Rdio, and other online destinations. This is a big change from the early days of online music, when free meant illegal. Today, music start-ups have caught on to the profit potential in “giving it away.” Companies like Pandora, which generated $67M of revenue in 2011 Q2, and Spotify with over two million paying users, don’t charge for entry-level service. Instead, these music innovators found a way to monetize music indirectly through advertising and other means. Music still comes at great cost — start-ups still pay high licensing fees to labels — but as the economics shift, licensing fees are likely to decline. (Yes, labels will do a lot of kicking and screaming.)

So how will labels offset the decline in recorded music revenue? How will artists capture more value for their creative work? The clear answer is from their fans. Musicians have really never engaged their fans, maybe every three years while they were on tour, but otherwise they just released albums and expected fans to buy them. Myspace was the first experiment with direct musician-fan engagement, and it started a trend that has continued. Now, over 300,000 musicians have BandPages on Facebook. Just about every musician has a Web site, e-commerce site, and a web strategy. Many are putting their music “out there” for discovery and promotion before it’s ever part of an album. Soundcloud has seven million users who upload their music and recordings, for example. YouTube’s most popular videos are music-related. Bands, managers, and labels understand this trend and are finding new and innovative means to monetize fans.

We anticipate a lot of “creative destruction” and changes to the value model based on fan-driven music marketing models. There are ways to make money from the music experience, and those channels — new and old, low- and high-tech — are creating opportunities for artists, labels, and music start-ups.

Here are some of the ways the music industry will make money going forward.

• Live Music
  While recorded music sales continue to decline, live music revenue has increased in the past few years. The industry has been following this trend closely and focusing more and more on live tours and events. There really isn’t a way to replicate or pirate the live experience. As cellist Zoe Keating joked about piracy at the recent SFMusicTech conference: “Go ahead, try copying me! Just try!”


Source: CNN, Forrester as above

• Patronage
  In the Elizabethan era, artists were supported by wealthy patrons; we’re headed back toward that world. Two models are possible here, and will probably coexist as supplements to the live music monetization. The first is corporate sponsorship, which is already used widely. Take the OK GO music video “This Too Shall Pass,” in which the band discreetly thanks State Farm for making it possible, or the somewhat distasteful product placements ($500K worth) in Britney Spears’s “Hold it Against Me” video. The Black Eyed Peas have become so intertwined with brands that The Wall Street Journal dubbed them the “Most Corporate Band.”

  The other sponsorship model is direct fundraising from fans – also known as crowdsourcing. In 2007, Radiohead released its album “In Rainbows” for free, asking fans to pay as much or little as they pleased. And more recently, Nataly Dawn from Pomplamoose used a Kickstarter campaign to fund her forthcoming solo album. She set out to raise $20,000 but fans overfunded her project by $104,788. This may not seem like a huge sum, but crowdsourcing will make all the difference for indie artists worrying how to pay their rent.

• Curation, Discovery and Network effect
  MP3 players were around for years before the iPod took them from the technophiles to the masses. Likewise, music services spread when they are easy to use and approachable. Pandora has managed to attract tens of millions of users to its radio service because of the KISS principal (keep it simple, stupid). While this sounds easy, it took them years to develop the music genome and “taste” algorithms that analyze billions of thumbs up/down votes to offer effortless music curation.

  Upstart Spotify made access and friends the top priority for its music service, and has unseated Rhapsody as the top dog in on-demand listening. Others like Turntable let listeners do the heavy lifting — letting anyone be a DJ and mix tracks via a competitive, social, cartoony environment. And still others, such as the Hype Machine, rely on the old-school expertise of hardcore music junkies, letting bloggers curate their own selections. The ad-supported model is all about building audiences, and it’s an ongoing cat-and-mouse game where new methods continue to emerge.

• Whales
  One dirty little secret in the free-to-play online gaming world is that “whales” — to use a Las Vegas term for big spenders — often account for a significant portion of the revenue. In many examples in the free-to-play world, the top 10 percent often contribute 50 percent or more of the revenue for virtual goods, game play, tokens, premium versions and more. In one recent example, one happy gamer spent more than $76K on a single social game buying the accessories he needed to build his fortress. Would “whale” fans of Arcade Fire spend tens of thousands of dollars to sit in on a studio recording session? Yes, and I’m offering!

  And beneath the mega-whales, there is a larger base of dedicated fans willing to pay to be a part of the experience, even if they don’t have thousands to spend. “Baby whales” mostly tend to buy merchandise: T-shirts, caps, branded toys, etc. These baby whales are still a small share of any overall fan base, but collectively, an extra $50 each from a small percentage of fans can really add up.

• Unique Experiences
  People love to engage with unique experiences — things you just can’t replicate — and will often pay top dollar for them. Concerts are one kind of unique music experience, but there are others. Nataly Dawn’s Kickstarter campaign offered big donors rewards, like their choice of a song for her to cover, early prerelease access to her album, and even a private in-house concert. In addition, there are now countless apps that let you be a part of the music, from the T-Pain auto tune app to ShapeMix’s tool that lets you remix songs yourself with isolated melody/bass/drums/vocal stems and post those to your friends. While, selling these extra experiences may not be a major monetization method, such methods do allow indie artists to generate income, and top artists to experiment with new avenues to engage and grow their fan bases.
• The Bottom Line
  Music is getting closer and closer to free. Distribution is becoming commoditized, so monetization must change. To this end, artists will have to pull out the stops to engage with fans more directly, and actively seek out fans and benefactors willing to pay more than usual for their work. The music startups that will make money over the long term are those that will connect artists with fans, help people filter and discover new music they love, and offer unique experiences. People will never stop listening to music — they’ll just change how they find it, hear it, and pay for it.

Hany Nada is a founding partner of GGV Capital (www.ggvc.com), a $1B venture capital firm with a dual focus on China and the U.S. Some of GGV’s investments include Alibaba Group, Pandora Media, YY, RootMusic, Buddy Media, Tudou, SuccessFactors, Square, and 21ViaNet.

Why not? No mystery at all: The band has decided that it wants to sell albums and tracks, not streams.

Billboard’s Glenn Peoples walks through this one quite effectively. It’s not that Coldplay doesn’t want to promote its new music on the Internet. It’s offering plenty of free samples through outlets like iTunes and YouTube, including a free concert that Google streamed this week.

It’s just that the band thinks that offering unlimited listens via Spotify and other streamers will cut into sales.

Spotify and the other services do pay the music labels and publishers to use their music, and eventually that money is supposed to make its way down to the musicians.

But for the few big acts like Coldplay that can still move millions of albums — their last one, which got a big push from Apple, sold 2.8 million copies — there’s no way that Spotify royalties will ever come close to the money they’ll make selling downloads and CDs (yes, CDs — the music industry still sells more discs than digital copies).

The list of Coldplay-size artists gets smaller and smaller every year, which is one big reason that the music labels finally acquiesced and let Spotify offer free music. Some money > none. But if they believe Spotify-style streaming ends up accelerating the decline of their remaining music sales, you might see more pullbacks down the line.

Meanwhile, speaking of absences: Note that the Beatles still aren’t legally available on any other outlet beyond iTunes.

AOL will fill Bronikowski’s position by promoting two of his deputies: Lisa Namerow will be responsible for most of the AOL Music properties, and Geno Yoham will oversee the company’s surprisingly durable Winamp platform.

At Echo Nest, Bronikowski’s job will be to generate new business for the the four-year-old start-up, which makes most of its money licensing data services to companies like MOG and Clear Channel’s iHeartRadio. One of Echo Nest’s key offerings: Tools that let music services create their own “discovery engines,” a la Pandora’s Music Genome Project.

Last year the company raised a $7 million round led by Matrix Partners.

Prior to AOL, Bronikowski had headed up Yahoo Music and put in time at Vivendi’s Universal Music Group. Earlier this year, AOL Music, which is primarily a free Web radio service, reintroduced a subscription offering.

Over the summer, Spotify finally opened for business in the U.S. and included a free, ad-supported option in its offerings. Now both MOG and Rdio, two other subscription music services, are adding big free components themselves.

Tomorrow MOG is rolling out a Web-based, ad-supported version of the service that gives users an undisclosed amount of free streaming music, which they can keep listening to if they engage with the service in certain ways, like sharing playlists with friends.

And soon Rdio will offering something similar, with two differences: Its free version will be ad-free, and the company won’t prompt users to take certain actions to keep the free going. It will decide, out of the user’s sight, how long to extend the free trial period, with the intent of getting them to upgrade to a $10 monthly subscription.

The timing of the new free services aren’t accidental. They’re both being announced in advance of Facebook’s F8 developer conference next Thursday. That’s when the social network is expected to announce a new music service that will incorporate MOG and Rdio as well as Spotify.

Details about Facebook’s service are still sketchy, but the primary gist is that Facebook won’t be building its own music service. Instead it will work as a hub that allows existing services’ users to share their tunes with their friends.

But it’s very unlikely you’ll be able to listen to a friend’s Spotify song unless you’re a Spotify user yourself. So it’s crucial for the services to make sure that signing up to use them is as easy as possible. And requiring someone to pay to listen to a friend’s song seems like a non-starter.

Hence: Lots of free trials that last for an undefined period.

Rdio CEO Drew Larner won’t comment about Facebook and its upcoming service. But he will talk about the strategy of offering free music, but only for a limited time. “We know free is powerful, it’s a great way to increase your funnel,” he says. “But it’s about not creating a tier for an alternative or replacement for what would be a paying subscriber.”

Ultimately Rdio, MOG and Spotify, along with services like Rhapsody, are all trying to get to the same place. They want customers to pay them a $10 monthly fee for unlimited music that works on both the web and devices like Apple’s iPhone and Google’s Android.

That’s a model the music industry was never happy about until recently, in large part because free ad-supported services like iMeem, MySpace Music, Qtrax, and Spiralfrog sputtered and/or failed completely.

The other option for music fans who don’t want to pay for music but don’t want to break the law is to play with Web radio services like Pandora and Clear Channel’s new iheartradio.

Those services let you listen to unlimited music, for free, but don’t give you on-demand access. Instead, you need to let them program your music for you in some capacity.

Somewhere in between the two sits Turntable.fm, which is also free, but gives users more control of their music — for now, at least, while the company tries to hammer out label deals. The service is also expected to play a role in the F8 announcement next week.

A couple of tweaks to my earlier report: Most important is that BBM Music subscribers can “share” songs with friends who also use the service. Which means that your pool of available songs could expand well beyond the 50 associated with your account.

Other details: You can only change up to 25 of the songs in your collection each month. And while music sources I talked to thought an international rollout wouldn’t kick in until next year, Research In Motion says it will be available in many territories later this year. For now, the beta is limited to the U.S., Canada and the U.K.

The big picture is the same: On a price-per-song basis, BBM Music isn’t nearly as good as the $10 for unlimited music services offered by MOG, Rhapsody, Spotify, etc. Nor will it give you access to all the songs you already own, a la new cloud services from Amazon, Google and Apple. But RIM will be marketing this as a service that’s about sharing and “personalization,” not access to a music library.

That’s the basic pitch behind BBM Music, the new subscription service Research In Motion plans to roll out soon.

As previously reported, the BlackBerry maker is in late-stage talks with the big music labels; music industry sources believe RIM is aiming for a beta launch in the U.S., Canada and the United Kingdom in early September. A RIM rep declined to comment.

Some other details:

• A full-fledged rollout is planned for the first three territories later this fall.
• RIM is negotiating global licenses with the music companies, and expects to launch in other territories in 2012; the big idea is to piggyback on the success of RIM’s BlackBerry Messenger service, which has more than 45 million users worldwide.
• Subscribers won’t be able to export their music to PCs or other hardware, with the exception of RIM’s much-maligned PlayBook tablet.
• Subscribers will be able to share songs with friends who are also BBM Music subscribers.

So why would anyone pay $5 a month to get 50 songs on their phone, when they can pay $10 a month and get an unlimited number of songs, that work on lots of different devices, from services like Rdio and Rhapsody?

Reasonable question! But RIM seems to be assuming that its subscribers won’t ask. Instead, it is playing up the notion that BBM Music will be about “personalizing” your phone, in the same way that ringtones supposedly did a decade ago.

Ringtones, as you’ll recall, let buyers play a few seconds of a song, and sold for a couple bucks, while full songs from Apple’s iTunes went for 99 cents. And for a few years, the music companies and the wireless carriers sold lots and lots of ringtones. (Crazy Frog!)

As I wrote yesterday, I don’t think a mini-subscription service is a terrible idea. Yes, standard subscription services offer much more bang for the buck, but they have yet to take the world by storm. And while people say they want unlimited music, they generally end up listening to a very small number of songs, over and over.

And if RIM can integrate billing through the carriers — so its users can sign up directly on their phones without having to take out a credit card — even better. This won’t save the company, but I don’t see how it hurts it.

If you wanted to get into it, you could have an interesting debate in which someone argues that caring about music isn’t always analogous to paying for recorded music. But whatever. For now, let’s stipulate that the “don’t take stuff that isn’t yours” sentiment is a good one.

That said: Not to be too be churlish, but if the Beatles and the people who control their music don’t want you to steal, shouldn’t they make their music widely available online?

As you may recall, last fall the band’s music finally became available in legal digital form, via an iTunes exclusive. And now, 10 months later, Apple’s store remains the only place you can buy Abbey Road, Let I Be, Revolver, etc. You can’t buy them via Amazon, and you can’t hear them via subscription services like Spotify, MOG, etc.

Online music exclusives aren’t unusual, but they’re usually very short. I’ve never heard of an act locking itself to one digital outlet for this long. And if you don’t want people to steal stuff, it would make sense to make it as easy to buy as possible, no?

If the Apple exclusive lasts a year, then it should expire in mid-November. But I wouldn’t be surprised if it lasts through the end of 2011 and possibly beyond, so that Steve Jobs and company can wring the benefits of another Christmas sales cycle: Remember that lots of iTunes content gets purchased right after the holidays, when people have new gadgets to play with/fill up.

Meanwhile, the Music Matters clips have some great animation, at the very least. You can see a collection of them at this YouTube channel. Here’s a sampling featuring the Jam, Stevie Wonder and Jay-Z (couple NSFW swears on that last one).

Today there’s a lot of hope that Spotify’s buzz/marketing will help make subscriptions mainstream. But if these things are ever really going to work, subscription services are probably going to need help, by attaching themselves to services that consumers are already using/paying for.

That’s what Rhapsody is trying today, by bundling itself along with wireless carrier MetroPCS via a $60 package that gives you all-you-can eat data and music. As Billboard notes, Rhapsody also has deals with Verizon and AT&T, but this is a deep integration that puts the service offering front and center for MetroPCS’s 9 million customers.

That said, I’m still not sure how compelling the offer will be, since it doesn’t appear to offer any discount to Rhapsody’s standalone $10 a month service: Beyond the music service, the differences between a $50 a month MetroPCS plan and a $60 a month MetroPCS plan seem to be limited at best.

And if you pay for Rhapsody on your own, you won’t be limited to Android phones, as you are with the MetroPCS deal.

[UPDATE: Rhapsody takes issue with my assertion that the MetroPCS bundle doesn't amount to a discount on Rhapsody's $10 a month a la carte price. I spent some time going back and forth with a Rhapsody PR executive over the issue this afternoon, and in the end, we're going to end up agreeing to disagree.

They point out that MetroPCS 4G users who pay $60 for a bundle that includes Rhapsody also get goodies like unlimited multimedia streaming, while $50 4G users who don't get Rhapsody are capped at 1 gig per month. The distinctions between the $50 and $60 3G plans are slighter, as I noted above. Again, you can try to decipher it for yourself via MetroPCS' pricing grid. But in the end, as I argue below, I don't think the bundle represents a serious discount, and certainly not one that will register with most consumers.]

[UPDATE TWO: As CNET points out, Warner Music Group, one of the four major music labels, has not signed on for this version of Rhapsody, which means any notion of a discount is officially silly, since MetroPCS bundle-buyers will be getting a service with major holes.]

If you really want to move the needle, I think that carriers or cable companies or someone will have to be willing to absorb some of the costs and offer subscription music at a substantial discount to the now-standard $10 a month price point. Any takers?

For some of you. The streaming music service, which has been trying to get to the U.S. for a couple long, grinding years, has finally done it.

All four big music labels are on board, including holdout Warner Music Group, and the service will officially open its doors tomorrow.

For now it’s invitation only, but it will open up over the coming weeks and months.

The basics: As in Europe, Spotify offers a couple different tiers of service. There’s a free, ad-supported service that lets you listen to whatever you want, as long as you’re on a computer that’s connected to the Web, and as long you don’t exceed a monthly time limit. For now, that’s 20 hours a month.

Spotify’s real goal is to get you to upgrade to its $10-a-month plan, which gives you unlimited, ad-free music, which you can also take with you via iPhone and Android apps. There’s also a $5-a-month middle step, which gives you ad-free music that’s not portable, but the Spotify guys don’t really expect much take-up there.

So go check it out, if you can.

And if you can’t, you’ve still got plenty of options. As I’ve noted many times before, Americans already have access to lots of subscription music services, like MOG, Rhapsody and Rdio. The big difference between those options and Spotify is they only offer a few days of free music before requiring you to pay up.

And of course, if you don’t want to pay at all, there’s plenty of other options, from legal services like Pandora, to grey-area services like Grooveshark and Turntable.fm, and the full-fledged piracy options which are easy enough for all of you to figure out on your own.

Related posts

• Here’s How Spotify Plans to Invade the U.S., With Facebook’s Help
• Spotify, Gearing Up for U.S. Launch, Closes Its $1 Billion Round
• When Will Spotify Finally Come to the U.S.?
• Spotify Toots Its Own Horn: One Million Paying Subscribers
• D: Dive Into Mobile: The Full Interview Video of Spotify’s Daniel Ek
• Spotify CEO Daniel Ek Live at D: Dive Into Mobile
• Spotify Full Coverage

My informed guess: Next week. Because that’s what Spotify reps have been telling U.S. label executives.

Or maybe later! Spotify is Spotify, so anyone who has paid any attention to this story will be reflexively skeptical that Spotify will show up in the U.S. until Spotify shows up in the U.S. Meanwhile, Spotify PR reps decline to comment.

While the service has agreements in place with three of the four big music labels, it still doesn’t have a signed deal with Warner Music Group, which normally would be a warning flag for this kind of guesstimating. But people I’ve talked to who are familiar with negotiations believe the two companies are close enough that a deal will be inked before the launch.

Meanwhile, if you’re in the U.S. and want to get a sense of what Spotify will look like, go check out Rdio or MOG or Rhapsody or Napster (for now — that last one may not make it much longer). Each one offers a similar service, where $10 a month gets you unlimited, ad-free, on-demand music on your PC or iPhone or Android handset.

The big difference between Spotify and its competitors is that in the past, Spotify has also offered unlimited free music, with ads, on your PC. But over time Spotify has cut back the amount of free music it offers, and now only gives away 10 hours a month in Europe.

It’s possible that some of those terms will change with the U.S. launch, but I’d expect them to stay quite similar. I also wouldn’t expect a grand PR push when Spotify does open up. Then again, they’re going to get plenty of (even more) free press on launch day.

Later this summer the Web site will begin selling access to two new premium Web radio services, which will let listeners enjoy digital radio via their iPhones — and later via iPads and Google’s Android handsets.

The offering is part of a larger move where AOL will use digital music start-up Slacker to power its free radio service, replacing longtime partner CBS.

AOL’s subscription service will also be based off Slacker. Slacker sells a “Radio Plus” offering for $4 a month and a “Premium Radio” for $10 a month, and AOL’s services should be priced similarly. Unlike the free radio service, both paid versions offer ad-free music and more interactivity than the free version, which is like Pandora except that it uses humans instead of algorithms to program music.

AOL Music chief Jeff Bronikowski says AOL’s existing radio service already draws around three million unique visitors a month, who listen to about 30 million hours of music.

AOL used to have a monthly subscription service, but sold it off in 2007 to Napster. Why try selling music again?

“Users have actually asked us for a subscription offering for a while,” Bronikowski says.

The trick will be distinguishing AOL’s offering from the competition, which is growing all the time: In addition to Pandora’s radio service, which also offers a premium version, there are on-demand subscriptions from the likes of Rhapsody, Rdio and MOG; U.K.-based Spotify should also be in the U.S. by the time AOL is selling subscriptions again.

AOL ANNOUNCES PARTNERSHIP WITH SLACKER INC. TO DELIVER
ENHANCED ONLINE RADIO LISTENING EXPERIENCE

Slacker Inc. to Become AOL Music Network’s Exclusive Radio Partner

New York, NY – June 28, 2011 – The AOL Huffington Post Media Group’s AOL Music is re-launching AOL Radio in partnership with Slacker Inc., it was announced today. AOL Radio will offer an enhanced radio experience with fewer ads, new personalization features and premium subscription offerings. The new service will deliver three product tiers to users: free AOL Radio with personalization and customization by Slacker, ad-free and feature-rich Slacker Radio Plus and on-demand access with Slacker Premium Radio.

AOL’s partnership with Slacker Inc. will provide access to ad-free radio and enable users to create tailored radio stations, save favorite songs and stations, read album reviews, access artist biographies, review station histories, and skip up to six songs per hour, per station. The partnership will enable Slacker to deliver its new radio offerings to a larger audience, allow AOL Radio and Slacker to develop new advertising opportunities for mutual clients and integrate AOL Music’s original editorial voice across all its services.

“Slacker Radio is the perfect partner to significantly increase the quality of our offerings,” said Lisa Namerow, Head of AOL Radio. “By combining AOL Radio’s reach with the success of Slacker in mobile, we are increasing the distribution of our brands and further identifying AOL Radio as a leader in delivering superior radio experiences.”

“Both companies bring unique content and functionality to this new partnership,” said Jim Cady, CEO of Slacker. “Aligning our strengths will enable us to expand our reach to greater opportunities across multiple platforms. We are thrilled to work with AOL Radio to continue to improve how music lovers experience radio.”

Upon the launch of the new AOL Radio player, Slacker will lead advertising sales within the player, enabling AOL to package a portion of the inventory for premium AOL Music integrated sponsorships.

The new AOL Radio and its award winning iPhone App, which has been downloaded more than 3 million times*, will re-launch in late summer. Android and other platform launches will follow shortly thereafter. The new player will also continue to host AOL’s 250 expert-programmed original music stations, as well as additional new Slacker programming including stations and content from ESPN Radio and ABC News Radio, which will include additional offerings and stations for subscribers.

*According to Apple’s App Store (via iTunes Connect)

And by the end of Thursday, following a 24 percent stock drop, Pandora was worth $2.1 billion.

What happened?

Anyone who can tell you, with a straight face, why Pandora investors bid the stock up one day and crushed it the next is full of it.

But just to be clear: Other than showing up at the New York Stock Exchange to ring the bell and give some interviews, Pandora executives didn’t do a thing to make the company more or less valuable in the last two days. And nothing outside the company affected its intrinsic value, either.

So unless you’re day-trading, Pandora’s temporary gyrations shouldn’t be that interesting. More interesting: What do the company’s next couple years look like? And crucially, what happens in 2015, when the company’s music licenses get reset?

Here’s Pandora CEO Joe Kennedy’s take, via an edited Q&A I conducted with him in the IPO aftermath:

Peter Kafka: Pandora only offers Web radio, which has been great for you because it means you haven’t had to strike individual licensing deals with music labels. But it also limits the service you can offer. Do you think you’ll end up working with the music industry to expand your offerings?

Joe Kennedy: Our focus is on radio. The research indicates that 80 percent of the average American’s music consumption is in radio form. Only 20 percent is CDs, or iTunes, iPod or whatever. We’ve dedicated ourselves to that 80 percent of the market, radio-like listening, serendipitous listening. It leverages 11-plus years of intellectual property, and that really is our focus as a company.

We’re more than happy to leave the 20 percent to Sony Walkmen, iPods, iTunes, iCloud, Rhapsody, MOG, Spotify, you name it.

But a lot of people seem to think of you in the same category as all of those other services, anyway. Is that a good thing?

Consumers do this 80 percent/20 percent thing without thinking about it. I don’t think they’ve ever thought about it consciously.

As far as general commentary about digital music, I think there is a lack of discrimination: “Oh, it’s digital music. Oh, it’s streaming.” By implication, it all meets the same consumer need. I think that will go through increased refinement and precision over time.

But some services are going to end up mashing up different kinds of features, anyway. Google was reportedly trying to offer a cloud locker, and a store, and a Web radio service like yours. You sure you want to stay streaming radio only?

Yes. We’d rather be best in the world at one thing that’s a great big piece of the market than be less-than-best in the world at several things.

The licensing deal you have goes away in 2015, and lots of people think that when that happens, the music industry will insist on extracting every bit of revenue they can from you. You’ll be worth $3 billion and they’ll want to grab $2.9 billion of it for themselves. How do you plan for that?

We operate under Federal statutory licenses. The license mandates arbitration proceedings every five years, and it’s Federally administered. It’s not a negotiated process. We believe that that process will yield an economically reasonable outcome.

So let me translate: What you’re staying is that this isn’t like iTunes, or Spotify, where a label could say, “I don’t want to participate.”

It’s fundamentally different.

And you’re saying that at some point, you’ll have a deal, brokered by a neutral party, and that if it’s at least not fair, it will be equally disappointing for both sides. And that you guys can live with that.

The law proscribes that judges determine the rates at which a willing buyer and a willing seller would meet in a marketplace transaction. No party has the ability to say, “I’m not in.” It is an economic analysis.

You usage is up dramatically, driven in large part by mobile use via Android and the iPhone. But mobile revenue isn’t that big for you. How do you change that?

We generate considerable revenue from mobile. I believe we’re one of the biggest mobile advertising sites in the country. Today, mobile advertising is more nascent than desktop advertising, which took 10 to 15 years to develop, but mobile is growing far faster. Key pieces of the puzzle, like third-party measurement, are just coming in. We’ll benefit tremendously from that.

Radio advertising is local, and you guys are predominantly selling national spots. Are you going to have to ramp up to sell locally?

That’s part of the advertising opportunity. But the vast majority of the biggest national online brands spending money on the interactive market — the vast majority of them already spend money on Pandora. We have the opportunity to take that spending and expand it to mobile. So we don’t see our opportunity limited to one bucket or another. We’re fully legitimately an online player, fully legitimately a mobile player, and fully legitimately a radio player.

Cars are a big part of the bull story for you guys — that at some point you’re going to be competing directly with radio on most people’s dashboards. When does that become a big deal for you?

We’ve had announcements from six of the world’s major automakers — Ford, Toyota, GM, Mercedes, BMW and Hyundai — and they’ve all said “we’re going to integrate Pandora into our vehicles going forward.” Now, the nature of automotive is, it isn’t a flip-the-switch phenomena. It rolls out over several models, over time. And then you have a replacement cycle that’s about 7 years per car. So I think of automotive as a snowball, that starts out relatively small, but builds and builds and builds and builds. You get out to years five to ten, and it’s tremendously big.

So five to 10 years?

The way I’d phrase it is that it starts out relatively small, and snowballs.

And over the next five years, we have the explosion of smartphones. They’re selling at a 15 million per quarter pace in the U.S. alone, 15 million android and iPhones. A good year in the car business in 15 million.

Nothing new there: Everyone is raising money–lots of money–for digital music services. Again. Even though the industry’s track record for the last decade has ranged from uninspired to lousy.

Still: Pandora is trying to raise $100 million or more via IPO, and Spotify is getting another $100 million or more from DST, Kleiner Perkins and others. Then there’s Rdio, and Beyond Oblivion, and SoundCloud, etc.

The big rap on subscription streaming services like MOG, Rdio, Rhapsody and Spotify is two-fold: Royalty fees from the music owners are too high, and consumer demand is too low–if people do want to spend money on digital music, they do it on a track-by-track basis at Apple’s iTunes store, not by signing up for a $10-a-month commitment.

But MOG founder David Hyman, like many of his peers, says that things have finally changed: He says he has worked out label deals that let him make money, and that new technology–he’s particularly excited about getting streaming Web music into cars–makes subscriptions appealing to mainstream consumers.

“Music is all about portability, and it was never going to take off until smartphones and 3G,” he said. “[Without that] it was like having a book, and being told you couldn’t read it outside of a library.”

Investors who’ve seen MOG’s pitch tell me the company is projecting $14 million in revenue for next year, which seems like a very, very long stretch: Industry scuttlebutt places MOG’s total subscriber base in the 20,000 range, which is where Thumbplay was before it gave up and sold to Clear Channel earlier this year.

Hyman won’t comment on the $14 million projection or subscriber numbers, but he does point out that MOG has a second business, selling advertising for a network of music blogs. He says he’s working with 1,500 properties, which collectively attract 39 million uniques a month.

Truth in blog posts about blog posts: The number isn’t news. The company hasn’t disclosed the milestone before, but it tells me it passed the one million mark about a month ago. Which happens to be when I first noted it.

Still it’s a number worth boasting about. It makes Spotify the biggest paid music service in the world, by a large margin.

U.S.-based Rhapsody, Spotify’s closest competitor, has recently said it’s at the 750,000-subscriber mark. But newer players like MOG and Rdio are much, much smaller; Thumbplay had 20,000 subscribers before it gave up.

Spotify’s critics will note the service has an advantage its competitors don’t have — the ability to give listeners many free days of music every month, instead of the 3-day free trial the others usually offer.

That free music is also one of the big sticking points in the company’s negotiations to get to the U.S., which have dragged on for two years. The big music labels worry the free tunes will kill off what’s rest of their music sales, without a replacement revenue stream.

If Spotify takes much longer to get to the U.S., it may find the competition has gotten in ahead of it. Google is trying to launch its own music store along with a digital “locker” that will let users store all of their music in the cloud. That’s not as exciting as Spotify’s all-you-can eat offering, but it’s going to be a whole lot cheaper. Spotify would likely run about $10 a month in the U.S., where Google’s locker may be $3 a month, or less.

Meanwhile Apple is looking to launch a much more limited locker service of its own. That one would only allow users to access songs they’ve purchased from iTunes, which is a tiny subset of most peoples’ collections, but it’s still competition. And a yet-to-launch music startup called Beyond Oblivion has just raised a staggering $77 million from investors including News Corp. (which also owns this Web site).

Which is perhaps why the company is also disclosing some other numbers beyond Ek’s post. Paid subscribers are growing at 2x the rate of free users, says Kenneth Parks, who oversees North America for Spotify (the company has a small, but growing, staff in NYC).

Parks also says the million paying subs represent about 15 percent of Spotify’s active user base, defined as people who have used the service in the last 30 days.

That puts Spotify’s active user base at about 7 million. That’s lower than the 10 million registered user number it has previously talked about, but Spotify correctly argues that active users is a more helpful metric. It’s good enough for Facebook, among others.

Next task: Convincing at least one more big music label — specifically, Vivendi’s Universal Music Group — to give Spotify a U.S. distribution deal, so Americans can figure out if they want to pay up, too.

And now there’s Sony. Which is offering less at the same price.

Sony is rolling out its (bear with me) “Music Unlimited powered by Qriocity” service today, and it’s a lot like MOG, Rhaposdy and other competitors: It sells access to all the music you want, whenever you want to hear it, for $10 a month.

But unlike its competition, Sony’s service won’t let you take the music with you on your iPod or mobile phone.

Which, as I’ve noted before, is pretty much the whole point of these things.

What’s Sony thinking? I chatted with Sony Network Entertainment head Tim Schaaff about it, and you can see our entire discussion below. Short version: Sony says it will make its music portable sooner than later; Sony thinks people will enjoy listening to the music on their TVs, controlled by their PlayStation 3s; and Sony will advertise the heck out of this thing.

There’s also an interesting backstory about why Sony isn’t launching with mobile. Or at least I’m sure there has to be. Right? But Schaaf won’t give that one up.

When Sony does go mobile, expect to see it on Android first. The company has been explicit about its interest in working with Google’s mobile platform, and hasn’t mentioned Apple and its iOS platform in its press materials. But I did get Schaaff to concede that, yes, Sony plans on working with Apple, too.

Except now that Apple’s new subscription terms seem to make it impossible for streaming music services to work in their present incarnation–Apple wants 30 percent of a low-margin product with high variable costs–it may be that none of Sony’s competitors will end up working on iPhones and iPods. Which would end up dramatically reducing the amount of ground Sony will have to make up.

Schaaff, by the way, should be an interesting person to talk to about Apple and its head-scratching subscription fiat. Prior to joining Sony in 2005, he had spent 14 years at Apple, and was intimately involved in the company’s media products.

But Schaaff is too politic to let me bait him into saying much about Apple’s moves, other than allowing that “it seems a little aggressive.” And then he can’t help himself: “Sounds like a good thing for Android.”

]]> http://allthingsd.com/20110217/sonys-music-service-comes-to-the-u-s-still-wont-work-on-the-go/feed/ 3 http://allthingsd.com/20110203/rdio-rounds-up-more-cash-for-online-music/ http://allthingsd.com/20110203/rdio-rounds-up-more-cash-for-online-music/#comments Thu, 03 Feb 2011 11:48:01 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=29243 No one has figured out how to make online music subscriptions really work, but people are still trying: Rdio has raised a new $17.5 million round led by Mangrove Capital. The company had previously raised at least $6 million from Skype and its founders; the new dollars are supposed to help it compete with Apple’s iTunes and a host of other subscription services, including Spotify, Rhapsody and MOG.

]]> http://allthingsd.com/20110203/rdio-rounds-up-more-cash-for-online-music/feed/ 0 http://allthingsd.com/20110118/another-music-service-you-didnt-pay-for-shuts-down/ http://allthingsd.com/20110118/another-music-service-you-didnt-pay-for-shuts-down/#comments Tue, 18 Jan 2011 16:20:34 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=28214 Here’s another swing and a miss by the big music labels: “Comes With Music,” a plan to bundle music downloads with Nokia phones, is going away.

It’s not a complete failure, apparently, as Nokia will continue to support the service in six countries, including China. But it will pull the plug in 27 other countries. (It never arrived in the U.S.)

The idea, pushed in large part by Vivendi’s Universal Music Group, was that consumers would pay a premium for certain Nokia phones and get access to all-you-can-eat music.

A couple of problems, per Reuters: Consumers didn’t want it, and carriers didn’t support it.

It’s possible that the Nokia plan was sunk because of a complicated digital rights management scheme that more or less locked the music onto the phones. But it may be that people just aren’t that interested in paying for all-you-can-eat music, whether that payment is bundled into the price of the phone, or via a month-to-month subscription service.

In the U.S., there is no shortage of the latter–Rhapsody, Best Buy’s Napster, MOG, Rdio, Thumbplay, etc.–but they haven’t caught on despite years of effort. In Europe, for now, Spotify seems to be gaining some traction–people familiar with the company say it now has one million paying subscribers, up from 750,000 last fall, but that’s still not mainstream.

Subscription services were supposed to get more popular once they started playing nicely with Apple’s iPhone, but that has kicked in over the past couple of years without any noticeable bump. Now subscription advocates are pining for another boost from Google, which they imagine will end up partnering with one of the services instead of building its own.

And if Google wanted to, say, provide every Android buyer with a couple months of free subscription music, they argue, then subscriptions might finally catch on.

Could be! But I wouldn’t count on it.

]]> http://allthingsd.com/20110118/another-music-service-you-didnt-pay-for-shuts-down/feed/ 5 http://allthingsd.com/20101222/dont-like-to-listen-to-music-on-the-go-sony-has-a-music-subscription-service-for-you/ http://allthingsd.com/20101222/dont-like-to-listen-to-music-on-the-go-sony-has-a-music-subscription-service-for-you/#comments Wed, 22 Dec 2010 13:21:46 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=27315 Hey! What if there were a subscription service that let you listen to any music you wanted, whenever you wanted?

Oh. That’s right. There are plenty of those already (Rhapsody, Napster, MOG, Rdio, Thumbplay, Spotify, etc.), though none of them have ever really broken through in a mainstream way.

Still, here’s one more: “Music Unlimited” from Sony, which launches in the U.K. and Ireland today, and is supposed to go worldwide next year.

In short, it appears to be like every other subscription service on the market, only much more limited.

That’s because while Sony gives customers access to some six million songs, via cloud-based streaming, it doesn’t allow them to take their music with them, on their phones.

That’s supposed to change eventually, but even when it does, Sony isn’t promising you’ll be able to listen to your tunes on an iPhone. A press release simply says the service “will also become available on a wide range of Sony’s portable devices, as well as on [Google's] Android-based mobile devices.”

And to be clear, it’s not as if Sony is giving this stuff away: It wants the same 10 pounds a month for its ”Premium” plan that Spotify charges its U.K. customers. And again, to beat this into the ground: Spotify lets you listen to whatever you want on your phone–that’s pretty much the whole point of these things.

If you’re still reading, you may want to click through to this AP story, in which Sony tries to argue that this is the kind of thing that will help it compete with Apple again. Personally, I think you’re better off looking at pictures of vintage Walkmans.

]]> http://allthingsd.com/20101222/dont-like-to-listen-to-music-on-the-go-sony-has-a-music-subscription-service-for-you/feed/ 2 http://allthingsd.com/20101207/spotifys-daniel-ek-explains-why-the-music-business-needs-him-and-you-do-too-video/ http://allthingsd.com/20101207/spotifys-daniel-ek-explains-why-the-music-business-needs-him-and-you-do-too-video/#comments Wed, 08 Dec 2010 00:10:20 +0000 Peter Kafka http://mediamemo.allthingsd.com/?p=26720 Spotify CEO Daniel Ek used to be confident that his buzzy music service would launch in the U.S. this year. That’s no longer the case, but Ek maintains that he’s going to get to the States sometime, and that people will love it when he does.

Here’s the thing, though: In Europe, where Ek has more than 10 million users, and 750,000 paying subscribers, music subscription services are a novel idea. In the U.S., they’re old hat: Ask Rhapsody. And Napster. And Rdio. And MOG. And Thumbplay, etc.

And subscription services haven’t really taken off, either: Most music listeners seem content to buy their music from Apple’s iTunes, or even brick-and-mortar stores like Best Buy and Wal-Mart. Or they don’t pay for music at all.

So what’s going to make Ek and Spotify stand out? We’ll let him make his case, in his own words, in a highlight reel of the conversation I had with him onstage at D: Dive Into Mobile.

]]> http://allthingsd.com/20101207/spotifys-daniel-ek-explains-why-the-music-business-needs-him-and-you-do-too-video/feed/ 0 http://allthingsd.com/20101202/spotifys-daniel-ek-splashes-down-at-d-dive-into-mobile/ http://allthingsd.com/20101202/spotifys-daniel-ek-splashes-down-at-d-dive-into-mobile/#comments Thu, 02 Dec 2010 20:58:15 +0000 Kara Swisher http://kara.allthingsd.com/?p=37970 Next week, we’ll be putting on our first brand extension of the highly successful D: All Things Digital conference with D: Dive Into Mobile.

And we’ve just added an exciting new speaker to the already top-drawer list: Daniel Ek, co-founder and CEO of Spotify.

For those living under a rock, Ek (pictured here with co-founder Martin Lorentzon) leads one of the most exciting music services on the Web right now.

In fact, the Swedish entrepreneur is shaking up how and where people listen to and consume music.

As MediaMemo’s Peter Kafka–who will be interviewing Ek onstage–recently wrote of Spotify’s efforts to bring its hugely popular (and legal) streaming offering to the U.S. market:

In Europe, where Spotify has been a very big success, listeners can stream an unlimited amount of music, on demand, without ever paying a cent. But in the U.S., rival streaming services like Rhapsody, MOG and Napster generally only offer a very brief trial period of a few days before requiring that a pay wall go up.

For the past two years, Spotify has insisted that free, unlimited streaming is the only way the service will work, because that’s Spotify’s most effective marketing technique. Subscribers who do pay up get benefits like ad-free music, and the ability to port their songs to mobile devices like iPhones.

But the labels, most notably Warner Music Group, have insisted that unlimited free streams only serve to strip away their product’s remaining value–if you can listen for free on Spotify, why would you ever buy another CD or iTunes single?

The whole mobile music space is a riveting one to dive into, of course, and we think Ek is the perfect person to help us do so.

Ek will appear Tuesday morning, December 6, but D: Dive Into Mobile opens on Monday, December 6, with an evening onstage interview with Google Android majordomo Andy Rubin.

The new conference represents the very first brand extension of our D: All Things Digital conference, now in its ninth year of grilling the big names in tech and media to sold-out analog audiences and scores more on the Web.

And, as always, there will be no PowerPoints, no panels and definitely no pontificating.

What there will be are unrehearsed, unscripted and unexpected interviews with top players, taking a big-picture view of the broader digital landscape.

But, unlike big D, D: Dive Into Mobile is topic-focused, drilling down deeply into the ubiquity of mobile technology and devices, and its implications for brands, organizations and consumers worldwide.

Offering a more intimate and focused conference setting, D: Dive Into Mobile will feature other industry heavyweights, including: Dan Hesse, President and CEO of Sprint Nextel; Mike Lazaridis, co-CEO of Research in Motion; Mike McCue, CEO of Flipboard; Joe Belfiore, Vice President of Windows Phone Program Management at Microsoft; Jon Rubinstein of Palm, now owned by Hewlett-Packard; Foursquare CEO and co-founder Dennis Crowley; Google Ad Products Management head Susan Wojcicki; and AT&T Emerging Devices President Glenn Lurie.

D: Dive Into Mobile will be held at the Ritz-Carlton in San Francisco and, as usual, we’ll be liveblogging the whole thing and also posting highlight videos.

Along with Walt Mossberg, Kafka and I, Mossberg Solution’s Katherine Boehret will be conducting the interviews.

You can sign up here for D: Dive Into Mobile.

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