Iovine’s pitch: It took guys who know music and culture to sell high-end headphones to the mainstream. And it’s going to take the same skill set for music subscriptions, which have been around for about a decade but are only now getting some traction.

In addition to Beats, Iovine has a very long resume and a very powerful perch at Universal Music Group, the world’s biggest label, which doesn’t mean he’ll succeed. But he’s certainly worth watching.

Iovine and his team aren’t talking about details yet, but he is more than happy to talk about the history behind his next venture — he says he wanted to get into music subscriptions before he got into headphones — and why he thinks he can do better than Rhapsody, MOG, Rdio, Spotify, Deezer and the other competitors on their way.

Best to let him tell it in his own words, so here are excerpts from an interview we conducted yesterday at CES, where he was getting ready to announce his new hire, Ian Rogers.

On early efforts to get into the subscription business, and pitching former Apple CEO Steve Jobs on the concept:

I always felt that our content was really valuable, and that it could help the tech guys with differentiation. The tech companies really didn’t see that. The guy that smelled it the most was Steve, obviously.

Once I went to see [Intel executive] Les Vadasz. I was running Interscope at time. He was a very nice man and he listened to me. I said, “You know, we could really help you guys.” He said, “You know, Jimmy, it’s a really wonderful story. But not every industry was made to last forever.”

So I was like “wow,” and I called [former Universal head] Doug Morris, and I said, “We’re fucked. These guys don’t want to take over our land — they want to come over and take our water and go back. They like where they are.” So from that point on, I was like, “You know what, this is going to cave. We need subscription. We really do.” I’ve just been single-minded about it since then.

In 2002, 2003, Doug asked me to go up to Apple and see Steve. So I met him and we hit it off right away. We were really close. We did some great marketing stuff together: 50 Cent, Bono, Jagger, stuff for the iPod — we did a lot of stuff together.

But I was always trying to push Steve into subscription. And he wasn’t keen on it right away. [Beats co-founder] Luke Wood and I spent about three years trying to talk him into it. He was there, not there … he didn’t want to pay the record companies enough. He felt that they would come down, eventually.

I don’t know what [Apple media head] Eddy Cue would say — I’m seeing him soon — but I think in the end Steve was feeling it, but the economics …he wanted to pay the labels [for subscriptions], but [the fees were] not going to be acceptable to them.

Why tech companies can’t succeed at music subscriptions:

I was shocked at how culturally inept most consumer electronics companies are. And what I also learned is that you can build Facebook, you can build YouTube, you can build Twitter — you can be a tech company and do that. But those [sites] program themselves. Subscription needs a programmer. It needs culture. And tech guys can’t do that. They don’t even know who to hire. They’re utilities.

Why Beats/Daisy will be different:

[Other music subscription] companies, these services, all lack curation. They call it curation; there’s no curation. That’s what we did as a record label, we curated. There’s 150 white rappers in America; we served you one.

We are heavy on curation, and we believe it’s a combination of human and math. But it’s a give and take.

Right now, somebody’s giving you 12 million songs, and you give them your credit card, and they tell you “good luck.” You need to have some kind of help. I’m going to offer you a guide. You don’t have to use it, but it’s going to be there, and it’s going to be a trusted voice, and it’s going to be really good.

Why making headphones is good practice for getting into music subscriptions:

Steve called me in once. He said, “You know something, you should feel really good. You’re the only guys from software that ever built a piece of hardware successfully.” That means that we can be the guys who cracked this code as well. Because we live in both worlds. We’re actually arguably better at this than at hardware. You know why they call it hardware? It’s really hard.

Previously, the product was in a limited invite-only mode, slowly spreading across the site user by user. When one person sent a gift to another, the recipient would then be able to start sending gifts to others (much in the way Google rolled out invites to Gmail and Google+ in the early days).

Currently, most of Facebook’s gifting options are food and lifestyle related, including cookies and cupcakes, stuffed animals and other relatively low-cost items.

But Tuesday’s wide Gifts rollout also comes with another gifting option: Wine. And lots of it. Facebook has partnered with 16 different wine makers, letting folks send each other bottles of red and white over the network.

Not so fast, eager teenagers. Facebook has put into place a number of age-verification safeguards to keep minors from sending booze to one another. Users under 21 can’t send or receive alcohol via Gifts. And even if the kids somehow get around those barriers, the delivery service will still card you at the door to make sure you’re as old as you say you are.

As the biggest shopping days of the year approach, Facebook has made it clear it wants to be a player in e-commerce. After rolling out physical Gifts in the fall, the company upped its game with the addition of some digital subscription options as gifts, including music and video services Rdio, Pandora and Hulu. And just last month, Facebook announced an agreement with Apple, letting users send one another iTunes credit to download music and movies.

To be sure, Facebook is no Amazon or eBay at this point. The gift offerings are minor, and the company has a relatively small number of retail partners offering gifts on the service.

But the idea that Facebook can eventually convince users that it’s more than a social network — that it’s a place to spend money with your stored credit card information — is far more valuable than any incidental revenue made up by customers’ Gift purchases.

Perhaps come the time the company’s next quarterly earnings details are filed with the S.E.C., we’ll see just how many users Facebook wins over with Gifts.

Xbox Music will start rolling out tomorrow on the game console, replacing the Zune marketplace, and on Oct. 26 it will be baked into more devices as part of the Windows 8 launch.

Xbox Music will be familiar to consumers who use other streaming music services, like Spotify and Rdio. From the start, it will have access to more than 30 million songs globally and 18 million in the U.S. It’s launching in 15 countries.

A free ad-supported version will allow users to manage their entire music catalog from their PC and supplement it with an online catalog that is streamed over the Internet. Users will be able to skip from track to track, create playlists or listen to an album without restrictions (at least for the first six months). A premium version will cost $10 a month and will work across PCs, the game console and Windows 8 phones.

Both services will allow the user to purchase songs a la carte for about 99 cents each, or use the Smart DJ feature, which will let consumers discover new music based on their interests.

Xbox Music was first announced last June and, since then, a lot of the details have been spilled, but nonetheless, this represents an important launch for Microsoft. It is the first significant investment it has made in music since the launch of Zune five years ago, and this time it hopes it has come up with a winning formula, given the company’s intense interest in owning the home entertainment space. Digital music is something that Apple has so clearly dominated that others, like Amazon, can be fairly successful and still only make a small dent in its market share.

Next year, Microsoft will also launch apps for iOS and Android devices, which will require the premium version, but obviously will extend the potential consumer base beyond those who are only willing to own Windows devices.

In an interview, Scott Porter, Xbox Music’s principal program manager, said over time, “music became work, and we wanted to make it an enjoyable experience again.”

From a Windows 8 tablet, Porter showed me how you can easily play music after searching for an artist, or how you can create playlists without a lot of dragging and dropping. The free version, he estimated, would play advertisements every two to five hours, which is the standard created by other music servies. With the paid version, though, Porter said users will be able to stream or download songs, and back up their entire music collection to the cloud, which can then be accessed on the phone or other devices.

The company, launched last year by Nat Friedman and Miguel de Icaza, says it has more than 7,500 paying customers for its technology, including the music service Rdio. Xamarin’s technology allows developers to write software for Android, iOS and Windows Phone using a set of programming tools familiar to those who in the past wrote software for Windows.

“With Xamarin, we are able to have it all,” Rdio engineering VP Todd Berman said in a statement. “We’ve saved thousands of engineering hours while delivering gorgeous, high-performance native apps across device platforms and form factors to consumers worldwide.”

Friedman, who previously worked with de Icaza on Ximian (later sold to Novell), said the new funding will help the company improve the service and build up its sales and marketing efforts.

“Our mission is to make it fast, easy and fun to build great mobile apps,” Friedman said in a statement. “We’ve had a tremendous first year, validated by more than 12,000 new developers per month, and millions of dollars in revenue. This funding will enable us to scale our success and better deliver on our mission, bringing millions more developers to mobile.”

This is according to a new report from Rebtel, a Stockholm-based VoIP company and Skype competitor.

Of all the participants in Rebtel’s recent survey, 79 percent said they planned to celebrate Valentine’s Day in some way, with 56.8 percent indicating their significant other will be away from home today. A full 86.6 percent of those people said they planned to get in touch with their long-distance lover — which left us scratching our heads a bit about the remaining 13.4 percent who wouldn’t be getting in touch at all. But, hey, not everyone’s into hearts-and-flowers day.

When told they had to choose just one method for communicating with their S.O. away from home, here’s how respondents ranked them:

Mobile phone: 64.3 percent

VoIP calling: 15.4 percent

Landline call: 6.4 percent

Video chat: 4.6 percent

Email: 3.9 percent

SMS: 2.5 percent

Social networks: 1.8 percent

Instant Messenger: 1.1 percent

With lots of free or cheap VoIP calling options out there — Skype, Rebtel and Viber, to name a few — it’s somewhat surprising that VoIP service and video chats ranked so far below mobile phone calling, but many consumers might find it easier just to punch in a number, or simply might not be aware of some of the VoIP apps.

And it’s nice to see that face-to-face video chatting ranks somewhere above SMS text messaging, scribbling on a Facebook wall or sending an IM.

For those of you reading this with sinking stomachs — having just now realized that today is Valentine’s Day — there are a slew of last-minute applications to bail you out, or buy you some time while you search for real, live, analog gift ideas. Like Tom’s Love Letters, or Lovestagram, an Instagram plugin created by the girlfriend of the one of the founders of the popular photo app. You could also send a love-themed playlist from Spotify or Rdio.

There’s also a super-nerdy but fun Web application from Desmos that can draw personalized Valentines with an HTML5 graphing calculator. According to its creator, Eli Luberoff, anyone can choose a romantically-themed graph, add a caption, and then email or tweet it to their significant other. The premise: Math and love are the two universal languages — combined, who knows the power?

Lastly, you can always turn to 1-800-Flowers.com. Which, despite what its name suggests, doesn’t even require a smartphone. Have at it, dudes.

(Photo courtesy of Flickr/Gawen947)

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.

But this version of SoundTracking isn’t just another Android app launch: it also integrates other, bigger streaming music services in a way that allows users to listen to full streams of songs rather than short snippets.

SoundTracking will incorporate music services Spotify and Rdio into its Android app by showing a small “add” button in the upper corner of the screen that will direct users to listen to full songs on those apps — provided the user is already signed up for Spotify and Rdio. The ability to listen to full song streams is one notable feature; the ability to move seamlessly back into the SoundTracking app by pressing the Android phone’s back button (and not having to relaunch the entire app) is another.

As my colleague Peter Kafka recently reported, industry sources think it’s possible that services like Spotify may eventually let third-party developers tap into Spotify’s music library and make it available to their own users — as long as those users are already paying for Spotify. Otherwise, things could get very sticky with the music labels.

While, technically, SoundTracking users will be navigated to the Rdio and Spotify apps, the ease with which users can listen to the songs within them is one step closer to tapping into an expanded API and music library of another service.

Through its iOS app, SoundTracking currently gets a tiny cut of purchases it prompts in the iTunes store. With the Android app, it also stands to make some (very incremental) revenue from the arrangement — should users sign up for Rdio, which has a referral program by which it pays affiliates 3 percent of the total value of a lifetime customer driven to subscribe from another service. Spotify currently doesn’t offer an affiliate program.

SoundTracking, created by Bay Area-based incubator Schematic Labs, first launched in March 2011, and claims about a million downloads to date. The SoundTracking Android app officially launches Wednesday, and will be available for free in the Android Market.

Way back in September, Facebook told the world it was launching two major changes to its service: A revision of user profiles, called Timeline, that would make them more substantive and beautiful records of people’s lives; and “Open Graph” tools for developers to automatically share activity by logged-in Facebook users to their Timelines and friends.

Facebook didn’t give a firm date for the new launches, though it indicated they would be ready soon. “We’re going to roll [Timeline] out widely over the next few weeks as we polish all the edges,” Facebook CEO Mark Zuckerberg told developers and press attendees in his keynote at f8 on Sept. 22.

But we’re already in December, and those tools have yet to arrive. Why the delay?

“We wanted to let developers build on the platform and to give users more time to get used to the idea of change coming,” a Facebook spokeswoman told AllThingsD, noting that Facebook has been criticized in the past for rolling out products in a hurry. Would she offer a launch date, or even an estimate? Nope.

Developers told AllThingsD that they are eager and ready to launch their Open Graph tools, but that Facebook keeps pushing its dates back. In recent developer communications, Facebook’s promises to launch “before the end of the year” have segued to January, the developers said.

Developers also said they’re worried that Facebook has told them it will likely run a staged rollout, where all users might not receive access at the same time, and where users would have seven days to review their Timeline before publishing it.

Those various states of deployment could be a chafe for app makers to support simultaneously, and could potentially confuse users.

At f8 in September, Zuckerberg had promised that Facebook would soon be filled with a cornucopia of verbs — like “watch,” “listen,” “read,” “cook,” “run,” “throw sheep,” etc. — building on the more static “people,” “places,” “things” and other nouns the site had supported in the past.

He said users could look forward to automatically sharing and collecting records of their culinary and athletic adventures through social cooking and social running apps, for example. Facebook also named a list of developers who had already agreed to create Open Graph applications, including Blockbuster, Flipboard and Mashable.

But only a chosen few — including Spotify, Rdio, the Guardian, the Washington Post and Netflix (though the social version of Netflix is not available in the U.S. yet) — got to launch in September; to my knowledge, no other partners or any other developers have since been allowed to release their “frictionless sharing” apps to the masses.

Meanwhile, more than a million Facebook users are already trying Timeline through a preview version for developers.

Months later, it seems rather odd that some users have an entirely different Facebook aesthetic. Personally, as a user with many connections in the tech industry who have activated their Timelines, when I happen on an older-style profile, with no glossy cover photo, the layout feels dated.

Here are some of the reasons Facebook, developers and conspiracy theorists gave for the delays:

• From the Facebook camp, we hear of efforts to rewrite Timeline to make it faster, to sync up mobile versions, and to fully ensure the product is ready. There’s also some chatter of internal conflict over the Timeline concept.
• Based on my own observations, early response to beta versions of the new features has been mixed. The new real-time Ticker, built to show Open Graph activity and every other action taken on Facebook as a sidebar on the site’s main page, was initially unpopular with many users. Anecdotally, I’ve seen very few Timeline beta users scan in their baby photos to tell the backstory of their lives. And new automated sharing features — like Spotify and especially the social news reader apps — can be annoying.
• There are also some external factors. A small company called Timelines, with trademarks on its brand, sued Facebook right after f8. A judge denied Timelines a temporary restraining order against Facebook, but said he would reconsider if Facebook opens Timeline to a larger audience. As of Oct. 8, 1.3 million people were using the Timeline beta, and tens of thousands were signing up per day, according to court documents. Also, Facebook recently agreed to settle with the FTC over privacy complaints. While the settlement specifically prohibits Facebook from retroactively changing any user privacy settings, it’s not as explicit about how Facebook must introduce privacy features for new products. Given that Facebook is likely to go public soon, people at the company are probably especially interested in surviving a major launch with as little privacy backlash as possible.

Please see the disclosure about Facebook in my ethics statement.

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.

Bingo! Your service gets a lot more users.

We’ve seen and heard this story several times since Facebook’s most recent redesign, launched in September, which autoshares what users are reading, watching and hearing.

So services that are hooked into Facebook’s new “ticker” are seeing an influx of traffic — the same way you’d get traffic if you put up lots and lots of signs on a highway used by a half billion people per day.

Still, it continues to bear repeating, and it turns out that music subscription service MOG wants to share.

Here’s the growth for monthly active users plugged into MOG via Facebook, plotted by Inside Network’s AppData Facebook tracking service. The Facebook redesign kicked in just about a month ago, and sure enough, so did MOG’s traffic. It’s now at 160,000 monthly users, up 4x:

So that’s good, right? “This is the best distribution platform we’ve ever had,” says MOG CEO David Hyman.

He projects that if these growth rates continue, his service will have racked up 2.1 million monthly users by the end of the year. For context, Spotify, Facebook’s first among equals when it comes to music service partners, is on an even faster tear, with much bigger numbers. It already has 7.1 million monthly active users via Facebook, up from 1.1 million pre-Facebook redesign.

This is precisely what MOG was hoping would happen when it overhauled itself to offer free music to new users without requiring a credit card or any other commitment. (Competitor Rdio made a similar move, as did Spotify).

What we don’t know is how many of them will stick around. It’s entirely possible that MOG’s graph could trend down again, like it did in mid-October.

And what we really don’t know is how many of these new prospects will eventually start paying a monthly fee for access to features like mobile music. All of that free music costs MOG and its peers quite a bit, and they need to convert a minority of their users to make the model work.

There’s also a flip side to the redesign story, where some big Web sites/services that had counted on Facebook for traffic saw it drop dramatically after the overhaul. This week I chatted with a publisher who saw Facebook referrals drop by more than a third after the redesign, due to changes in the way the service surfaces shared stories from users’ friends.

That drop is similar to the effect some publishers noted after Google’s “Panda” overhaul. But the publisher I talked to this week says their sites at least were able to claw back much of that referral traffic by manually tweaking their sharing mechanisms.

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.

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.

Facebook has told media executives in recent days that it will begin letting online music services such as Spotify AB and Rdio Inc. publish user activity on Facebook pages, much like actions such as adding friends or “liking” websites.

If finalized, the changes could be announced at Facebook’s f8 developer conference in late September, said a person familiar with the matter.

Read the rest of this post on the original site »

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.

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?

Short version: A few prominent players have accepted Apple’s terms and will be giving Steve Jobs a big chunk of their subscription revenue.

Many more are sticking around the App Store, but removing any kind of e-commerce link from their apps. This makes their apps less useful, but at least it doesn’t cost them any money.

And a third group is trying an end run by building their own Web apps that will work on Apple devices without requiring the company’s approval.

Some examples from each category:

Play along, eat the tax: Some big print publishers, including the New York Times, Condé Nast and Hearst, are working with the new rules.

That means that they’ll hand over 30 percent of the subscription revenue they generate via iOS apps every month, and that they won’t have access to as much consumer data as they’d get if they sold the subscriptions on their own. But they’ll put up with it in order to reach the 225 million iTunes accounts Apple controls.

(Variation on the theme — play along, pass the tax along to consumers: Music subscription service Rdio is accepting Apple’s tax as well. But to protect its margins it is raising the price for subscriptions sold through iOS devices, from $10 to $15. After Apple gets its 30 percent cut, Rdio will end up with the same $10 it would have had before the new rules.)

Stay in iTunes, but grudgingly: This is the “better than nothing” approach. Services like Netflix, Hulu, Rhapsody, Spotify, and publishers like Time Inc. and The Wall Street Journal (which, like this Web site, is owned by News Corp) are keeping their apps in iTunes. But rather than hand over cash and lose access to customer data, they won’t sell any subscriptions through their iTunes apps.

And at Apple’s insistence, they are stripping out any links that send customers to the companies’ home Web sites. This even applies to services that aren’t selling subscriptions at all, but are offering access to content as part of other subscription services. See, for example, ESPN’s WatchESPN app, which tells users that they have to visit an ESPN Web site to sign up for the service, which is free for certain cable company customers. But the app doesn’t offer a live link to the site, just an address.

End run: The Financial Times was the first big media company to build a Web site that mimics an app but works on Apple’s Safari browser, as a way of working around Apple’s restrictions while reaching Apple’s customers. Now Amazon has followed suit, as has Wal-Mart’s Vudu video service.

Note that both the FT and Amazon continue to keep their old apps in iTunes; they’ve just neutered them. You can still read Kindle titles you bought on Amazon’s iOS app, for instance — you just can’t press a button that will take you directly to Amazon’s Web site to buy a new one.

So what does all of that tell us about the App Store ecosystem and how developers will fare in and out of it?

Not much. It’s pretty early. We might have a better idea in a few months when some publicly traded companies like the Times may end up talking about their Apple relationship during earnings calls. (Admittedly, that’s a stretch of a hope: Apple has a way of getting most of its partners to STFU.)

That said, here’s a not-very-out-on-a-limb prediction: Companies who already have lots of customers and are already in frequent communication with them, like Amazon, should do fine outside of the store.

And companies that have lots of potential customers but little traction, like Vudu, will likely struggle. Particularly since that company sells the same thing — video-on-demand rentals and sales — that Apple already sells through iTunes.

At least as important: Spotify now has 175,000 paying U.S. subscribers, less than a month after it finally opened its doors in America, says the same source. Last week Billboard cited a source who pegged Spotify’s U.S. user total at “at least one million.”

That’s a conversion rate — crucial to both Spotify’s business plans and to the big music labels — of 12.5 percent. Not quite as good as the 15 percent rate that Spotify reported in its home base of Europe last spring.

On the other hand, Amercian users have less incentive to pay for Spotify than Europeans do — during the company’s six-month launch phase, the U.S. version of the free service gives users more music than the European one does. The main reason to upgrade to paid is to get access on iPhones and Android handsets, for $10 a month.

In any case, it’s still hard to gauge what the numbers mean — it’s very early, and there has been a lot of hype.

Still, for context: Spotify reports that it has 1.6 million paid subscribers in Europe. And last month Rhapsody, the biggest digital music subscription service in the U.S., said it had 800,000 paid subscribers. (Sirius XM has 21 million subscribers, but the satellite radio service isn’t an apples-to-apples analog with Spotify et al; closer to a pear.)

Meanwhile, Rdio, a U.S.-based Spotify competitor hoping to capitalize on Spotify’s wave of publicity — or at least not get drowned by it — has made an interesting move: It is going to continue marketing its service via Apple’s iTunes, while raising its prices — for customers who sign up via its mobile apps — from $10 to $15 a month in order to comply with Apple’s new subscription rules and fees.

Most other subscription services — including Spotify and Rhapsody — have gone the other route, by taking down subscription links from their Apple apps, but keeping their pricing intact.

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)

But before we get too excited about the prospect, here’s what a Facebook/Spotify pact would likely look like: Instead of using Spotify’s software to play music, Facebook users could access Spotify from a Facebook Web page and listen to some music for free.

And here’s what a Facebook/Spotify pact likely wouldn’t look like: Unlimited free music for Facebook users.

In other words, if Facebook and Spotify do deepen their relationship, it will be a nice feature for Facebook and a nice promotional outlet for Spotify. And if Spotify CEO Daniel Ek (pictured at right) ever does open for business in the U.S., it’d be a good way to introduce Americans to his service.

But it will still be the same service: A limited amount of free music, and the option to upgrade to a paid subscription.

Or put it another way: Let’s say Rdio linked up with Skype to promote its streaming music service, a not-unlikely scenario. Does that sound like the kind of thing that would freak out Apple?

Right. So take a breath.

Talks of a Facebook and Spotify partnership have bubbled up since last year, and they’ve been popping up again this spring. And neither Facebook nor Spotify are trying to bat down today’s Forbes report of an imminent linkup (they’re not even trying to call it a “rumor”).

But everyone I talk to who knows Facebook, Spotify and the music business says the following things haven’t changed:

• Facebook isn’t interested in negotiating with music labels to create its own music service, or paying a third party to provide their own. Instead, Mark Zuckerberg and company are interested in letting others set up shop on their platform, and perhaps sharing revenue–via credits, ad dollars, whatever.
• The music labels aren’t interested in letting Spotify promote itself by giving away lots of free music–in fact, they’ve been pressuring Spotify to give away less. Spotify used to let anyone listen to as many tunes as they wanted, gratis, but then cut that back to 20 hours a month. Last month, they cut that back again, to 10 hours a month. Unless Spotify is going pay the labels more money, that’s not going to change.
• The money Spotify does have is going into marketing, and paying the labels for the right to launch in the U.S., which it still can’t do yet because it still doesn’t have the deals it needs.

So, if Spotify wants to use Facebook as an alternative to its own desktop client, it can do that–that’s a software/product issue to hammer out. Perhaps it’s the kind of thing that Ek had on his mind when All Things D‘s eagled-eyed Drake Martinet spotted the London-based Swede in Palo Alto earlier this month. But it’s not in a position to do anything more.