- The Washington Times - Tuesday, March 22, 2011

Just when you thought it was safe to hunker down for some entertainment, a battle is brewing between digital music in your home and money in your wallet.

Streaming music services aim to bring their wares, potentially every song ever recorded and released in North America, to your home entertainment system, your bedside, your iPod and your car stereo, all for about $10 a month.

Among the leading services — some paid, some supported by ads — are MOG, Pandora, Rdio and Slacker. These firms were among the most feted at last week’s South-by-Southwest (SXSW) festival in Austin, Texas, which has become a vanguard of music development.

That $120 per year may not seem like much, but multiply it by the 20 million or so people who spend about that much for satellite radio — which does not offer the specific songs you want when you want them — and the annual market potential is $2.4 billion.

It may be even more. Allied Business Intelligence Research, which tracks the tech industry, said Thursday that the several million streaming music subscribers will grow exponentially in the next five years. Much of that growth will be overseas, but it portends a huge market.

“The number of subscribers to mobile music streaming services is expected to approach 5.9 million by the end of this year,” ABI analyst Aapo Markkanen said in a news release.

Mr. Markkanen said the firm “believes that number will exceed 161 million subscribers in 2016, meaning a compound annual growth rate of nearly 95 percent. Sometime in 2012, the Asia-Pacific area will become the largest regional market for mobile music streaming.”

An estimated 161 million subscribers paying $5 to $10 per month becomes a market worth tens of billions of dollars a year.

Meanwhile, traditional recorded music sales continue to lose traction. On Feb. 17, the Nielsen Co. reported that households that buy video games spent one-third less of their home entertainment dollars on music CDs and MP3s — from 3.8 percent in 2009 to 2.6 percent in 2010 — the second straight year of losses. In a September report, Nielsen’s SoundScan unit said CD album sales dropped nearly 18 percent that year versus the previous 12 month period.

Not many places are left to produce CDs anyway. On March 31, Sony Corp.’s digital media unit will shutter its CD plant in Pitman, N.J., which for 50 years has manufactured recorded music for retail sale: first, long-playing records, and then, since a 1982 Billy Joel release, CDs. The firm cited a sharp drop in demand, the Associated Press and other outlets reported.

If discs are fading, don’t expect to find music lovers hanging on to commercial radio stations, which critics say have homogenized playlists and limited options for listeners.

“I have two kids in college; they hate traditional radio,” said Joe Mohen, an Internet entrepreneur from Long Island, N.Y., whose latest venture, SpiralFrog Inc., offered free music downloads supported by online ads. He contends that traditional “radio itself has lost a lot of listening time. People are going to drift to different kinds of audio.”

Carter Adamson, chief operating officer of Rdio, said that is partly because “more and more devices are becoming connected and able to talk to the Internet and pull down music streams.” Devices such as Internet-connected TVs, BluRay disc players, video/music/movie delivery devices such as TiVo, Roku and AppleTV, and stand-alone music receivers such as Sonos’ popular S5 or Logitech’s Squeezebox, are all capable of bringing music from home wireless networks to any room (or patio) you desire.

That connectedness creates an opportunity, but also a dilemma. “If you believe that assumption, then the a la carte model” of music buying “simply does not scale,” Mr. Adamson said. “It doesn’t make sense to spend $10,000 to fill up iPods with 10,000 songs at about $1 per song. Or to have multiple external hard drives to move music around. The only logical way forward is through a monthly subscription model.”

MOG founder and Chief Executive Officer David Hyman, speaking from a noisy South-by-Southwest conference, said, “Consumers love having it built into the TV.” His premise, shared by leaders of the other services, is that having the music available where consumers want to hear it is key. Mr. Hyman knows what buyers want: He is a former marketing boss at MTV Interactive and former CEO of Gracenote, the online music information database purchased by Sony Corp. in 2008 for $280 million.

That track record is partly why much was made last week of MOG’s demonstration of its system at work inside a BMW Mini, one of the first automotive models where MOG wants to deliver its music. Start listening to “Stairway to Heaven” while having breakfast and you can finish in the car as you ease onto the freeway, all for $9.95 a month.

Or cut that price in half for living-room-only listening, Mr. Hyman said.

“We’re essentially Netflix for music,” he said. “In the TV, you pay $4.95 a month for MOG, and you get everything on demand, all [the music] you can eat. We’ve announced partnerships with LG, Samsung and Vizio. MOG will be built into all their flat screens and music players, and we’re the only one that has that kind of penetration.”

MOG is not the only one available on the TV in your family room. Plug a Wi-Fi “dongle” into a Samsung flat-screen television and you can punch up an application to play Pandora, an Internet radio service based in Oakland, Calif., that claims 80 million registered users and about 30 million active listeners. Though executives are limited in what they can say during the “quiet period” before their initial public stock offering, Jessica Steel, executive vice president of business development, was bullish on Pandora’s prospects.

“Our value is taking advantage of an Internet delivery of radio, which allows for a one-to-one communication with each of our listeners, and we’re tailoring the music to each listener’s tastes individually,” Ms. Steel said. “We’re really redefining radio.”

Mr. Mohen, the Internet music entrepreneur, is clearly a fan, even if Pandora helped crush his Spiral Frog business. “Pandora is one of the really true innovations in programming — not just on-demand streaming of music, but really a smart radio,” he said. “It’s one of the few complete innovations.”

San Diego-based Slacker, another “personalized radio” service that offers a commercial-free option for $48 per year, is seeing its “attach rate” to home entertainment devices grow, said Jonathan Sasse, senior marketing vice president, who was overseeing two ad hoc Slacker “stations” at SXSW when he spoke with The Washington Times last week. After last Christmas, he said, lots of Sony BluRay customers were dialing in to Slacker, in large part because the home entertainment system is where the best audio quality is found.

“The thing with the home, especially with connected devices in home theaters, [is users] have invested most money into audio experience,” Mr. Sasse said. “Bringing our service into that environment is very important. These are the devices that are powering those experiences right now. Acoustically, that is where the dollars are being spent.”

Missing from digital downloads, in large part, is the ability to hear about that great new song by an artist you don’t know. On iTunes, there’s no “Cousin Brucie” to hype the latest single, even if sales rankings and user ratings can guide customers to the moment’s most popular cuts, whether it’s Pink, Adele or (saints preserve us) the “Glee” cast.

Rdio’s Mr. Adamson says his service can change that by layering social networking features on top of playlists: Follow your friends who use Rdio, and let them lead you to the next Amy Winehouse.

“The most consistent piece of feedback we get on Twitter is, ‘I gave up on music after college, but I’ve discovered more music as an Rdio subscriber than in the past two decades,’” Mr. Adamson said. “We’re bringing people back to great new music they wouldn’t have been exposed to otherwise.”

One of those post-college, MP3-laden consumers MOG, Pandora, Rdio and Slacker all want to reach is Teri Robinson, an independent filmmaker and journalist in New York City. Once the proud owner of some 3,000 CDs, Ms. Robinson confesses to having thousands of songs on her iPod and iPhone. Streaming, especially for a reasonable flat rate, has its appeal.

“I have not signed on, but I’m a likely customer. I’ve been thinking about it quite seriously,” Ms. Robinson said. “If I could stream virtually anything, I would. That’s my plan.”

The ubiquity envisioned by the services is another plus. “For high-tech, it seems a bit more organic” to stream songs everywhere, Ms. Robinson said.

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