Author: Paul Bonanos

Sorry, “web song” buyers: Lala.com now says its service will be shut down on May 31. Whatever Apple is planning to do with Lala, the cloud-based streaming music service it acquired in December, it’s not going to keep the site functioning as it once did.

Established as a CD-swapping service in 2006, Lala repositioned itself as a forward-thinking cloud music site in 2007, offering a storage locker for its users’ MP3 collections while selling 10-cent web songs that gave buyers the right to stream tracks as many times as they’d like. It may have been ahead of its time; while relatively few buyers paid for web songs, the shift from owning music files to streaming them from the cloud (GigaOM Pro, sub req’d) appears to be gaining mainstream approval. Apple’s acquisition of Lala last fall augured a future in which the iTunes software allowed us to play songs from the cloud, although the company has yet to describe what that will look like in practice. Will it merely let us stream the song files we possess from any device, or will Lala’s innovative form of ownership — the ownership of a stream, at roughly a tenth the cost of an MP3 — be echoed in Apple’s new project?

Speculative reports have suggested that a new version of iTunes could appear as soon as June, although Apple has yet to reveal any new agreement with major record labels that would allow cloud-based streaming. (Lala’s license was reportedly non-transferable, should the company be acquired.) Any new agreement could involve a messy renegotiation in which Apple would make new concessions to the labels, as it did last year when variable pricing, DRM and bundling formats were in play.

Apple will issue iTunes store credit for Lala web song purchases as well as outstanding wallet balances.

Music is a language that’s woefully underrepresented in the science of Internet search. You can Google a song title or some lyrics and get good results, but the language of melody and rhythm remains elusive for most search engines. As a lifelong musician, I’ve wanted a tool that translates musical input into useful search results for years, but while Shazam has received the most attention — especially after being featured in an iPhone ad — Midomi’s more powerful paid app has won over fans by adding a sing-to-identify function. Because indeed, you can’t Google a melody.

As of today, Midomi has rebranded itself as SoundHound and introduced a new freemium model aimed at challenging Shazam on both free and paid music app charts. The company has also hired away Shazam’s former VP of business development, Katie McMahon, in an effort to execute on a partnership strategy to incorporate its sound-matching search tool into other sites and applications. Its ambitions could also make SoundHound a target for acquisition, since it does something Google and its rivals cannot.

Although SoundHound’s search is imperfect –- it doesn’t really work for strummed chords or harmonized vocals, and it relies on a crowdsourced website for its somewhat limited sing-to-identify database -– it outclasses by far any of the available melody search engines I’ve seen on the web. I’ve used it to identify wordless jazz standards I heard as a child and carried around in my head for decades; it picked them out in a matter of seconds. And it’s faster than Shazam when it comes to identifying recorded music, too.

Its first order of business is taking on its better-known rival by offering more functionality at the same price, with voice search, lyrics and videos built into the app — users can identify five songs per month for free, while a $5 premium app will provide unlimited IDs.

Over the longer term, SoundHound can branch out into other arenas, which I discussed with WaldenVC’s Larry Marcus, an investor in SoundHound parent company Melodis Corp. as well as an early Pandora stakeholder. (Melodis has raised $16 million from WaldenVC, Global Catalyst Partners, TransLink Capital and JAIC America.) The app currently makes money through mobile ads and affiliate sales of songs, but Marcus said SoundHound is exploring deals with carriers and device makers seeking to incorporate search into music apps, as well as extending its search functionality into existing music subscription services. Furthermore, the company is using sound matching to develop an advanced voice search technology that uses the sound of words rather than converting them to text – what Marcus called a “natural misspelling engine” that can also correct mispronunciations. Might Google be knocking on SoundHound’s door next?

Rhapsody has officially become an independent company, two months after former parent RealNetworks revealed plans to cede majority control of the music subscription provider. Now a standalone entity in which RealNetworks and Viacom possess equal minority stakes, Rhapsody also said today that it will offer a $10 monthly subscription service in an effort to better compete with several innovative and inexpensive rivals that have sprung up in recent months.

The new price point reflects an industry-wide drop in the cost of all-you-can-eat music services, which deliver access to a large library of songs for a monthly fee, even as their providers add mobile functionality. Rhapsody has taken steps to evolve alongside newer subscription services such as MOG and Thumbplay, which offer cloud-based streams to both desktop PCs and mobile devices for about $10 per month, as well as free alternatives. Rhapsody traditionally delivered streams to the desktop, along with “tethered download” files that can be loaded onto certain mobile music players, for about $15, but added cloud-based access through its iPhone app beginning last September.

Rhapsody has also recently renegotiated its licensing fees with content owners, representing more realistic expectations from labels. While confidence in free streaming models is fading, Warner Music Group chief Edgar Bronfman Jr. said recently that the label is increasingly willing to experiment with paid subscription models.

Along with the ownership change and price cut, Rhapsody introduced an application that runs on Android phones, along with a new logo (pictured). Despite the overall reboot, existing subscribers will have to contact the company’s customer service department to sign up for the new pricing plan; otherwise they’ll continue to be billed at the old subscription rate.

Although some of its upstart rivals have garnered more attention lately, Rhapsody is still among the largest subscription providers in the market with more than 675,000 subscribers as of the end of 2009, according to RealNetworks, down from a peak of 800,000 earlier in the year. Competitor Napster, owned by Best Buy since fall 2008, no longer reports the size of its subscriber base, but was last known to have 708,000 subscribers around the time of its acquisition; Spotify recently said it had signed up 325,000 paying customers in Europe, and is still planning a U.S. launch, originally slated for late 2009.

Rhapsody’s spokesman said the company is forecasting profitability by the end of 2010, with revenues near $130 million. RealNetworks invested $18 million in cash as the company was spun out, while Viacom said it will contribute $33 million worth of advertising inventory to promote Rhapsody on its properties, including MTV Networks.

Guvera, the well-funded Australian music site, quietly introduced a new free ad-supported download service in the U.S. this week, representing another twist on a model once left for dead. The company, backed by AU$30 million ($27.5 million) in venture money, is gambling that its unique targeted ad model will provide a worthwhile opportunity for advertisers seeking to connect with particular audiences by dangling free MP3s in front of consumers.

The model, which CEO Claes Loberg calls “engagement advertising,” allows an advertiser to choose specific songs to sponsor along with target demographic groups. Rather than interrupt the experience with a video ad, he says, advertisers can create branded pages that feature dynamic lists of songs with which the brand wants to be associated. Essentially, the model demands that consumers willfully click on a chosen advertiser’s brand name. The advertiser’s fee covers the retail cost of the song file, plus a little more for Guvera itself.

For consumers, the path between a search and a free song file is one of fairly little resistance. If I search for an artist and choose a song, I have to pick an advertiser and visit a “channel” page populated with a list of songs, one of which is the one I want. Although I don’t pay for my track, I’m required to use up a song credit, which can be earned by telling Guvera what some of my favorite things are -– foods, vacation spots and so forth. So by volunteering a bit of personal information and viewing a list of songs with which a consumer brand wants to be associated, I get a DRM-free MP3 at no charge.

Guvera has drawn comparisons to Atlanta-based FreeAllMusic’s service, which is still in private beta. That site offers an MP3 in exchange for watching a video ad of your choice. I’ve enjoyed FreeAllMusic for a couple of months, especially because I know the artists whose music I download are compensated, although I’ve felt little engagement with most of the ads I’ve seen. In fact I’ve already figured out which one of the available ads is the shortest, and I’ve chosen it repeatedly even though it’s hawking a product I’ll never buy. If advertisers are really paying $2 for each video ad impression they serve up as I fill out my jazz collection, in my case, they’re overpaying.

The same may be true of Guvera’s advertisers, who might sway me occasionally but whose pages I’ll probably click on without much thought. Each has a limit: Guvera allows brands to cap the amount they’ll spend on each consumer, making the service less scalable but also better tailored for grabbing a single song than a whole album, which might require more credits than the advertiser is willing to give. In that sense, Guvera plays to the consumer of hit singles first and foremost: Don’t buy the Lady Gaga song, let the hair product maker buy it for you.

Guvera’s U.S. launch is still incomplete. Although the song catalogs are searchable, the channel pages aren’t yet populated, so there isn’t any free music available just yet. (I was able to preview the Australian version early this week, which Loberg said about 50,000 Antipodeans are using.) Also, Guvera has signed up only two of the four major labels thus far, plus indie aggregators IODA and Ingrooves, although Loberg said a deal with a third major is imminent.

A smash hit in Europe, streaming music service Spotify is now aiming to launch in the U.S. by the third quarter of 2010, according to a Bloomberg report. Originally slated to appear stateside sometime last year, Spotify has repeatedly pushed back its U.S. launch, bogged down by licensing issues surely tied to fading confidence in the free ad-supported streaming model. Offering free streams as well as a premium paid service, Spotify’s fortunes are closely tied to its conversion rate of free to paying customers, and the company hasn’t always pleased major-label content owners with its returns.

The U.S. launch may coincide with the rollout of a revamped version of the product. CEO Daniel Ek told a SXSW crowd earlier this month that a “more connected” edition of the product is on the way, with more social and sharing features; Ek has also outlined ways in which the service can serve as a platform for selling tickets and merchandise as well as providing a direct-to-fan communications channel. The Bloomberg report also says apps for BlackBerry and Palm phones are coming soon; Spotify already has iPhone, Android and Symbian apps.

That sounds great, but a lot can change in a few months. Spotify already faces increased competition as subscription services continue to spring up — each taking a slice of the paying consumer market it will need to capture. Spotify may also have to adjust its own model as content owners’ demands and expectations continue to shift, and Ek has acknowledged that the U.S. model will feature “slight changes” compared to what Europeans currently enjoy. He has insisted that the U.S. version will have a free component, although I have my doubts.

Spotify’s product is terrific, and it has won over investors. Its conversion rate is improving — it’s now about 4.6 percent, with some 325,000 paying customers among 7 million total users — and a Universal Music Group digital executive said in January that the company’s model appears to be sustainable, despite the need for a double-digit conversion rate. But Spotify once suggested it could come to the U.S. by the third quarter of 2009, then aimed for year’s end, and now says it won’t make it out until the summer. Forgive me for wondering if 2011 is a possibility.

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Rankings: Spotify Leads the Streaming Music Scene

Music is moving into the cloud, right? Access is replacing ownership of albums and song files, online streams are replacing desktop playback and mobile access is renewing interest in on-demand music subscriptions. Older services such as Rhapsody and Napster now appear prescient, though they never quite went mainstream, and newer ones such as Spotify and MOG are attracting big VC dollars.

So how come I’m still not ready to pay for any of them?

I’m a voracious music listener, one with varied but quite specific tastes and as such, a large collection of albums and songs in both physical and digital form. After taking several different subscription services for a test-drive, however, I found that they provide a good — but still very flawed — experience. Here are five reasons why:

There are still significant gaps in the catalog. As I’ve noted, the services may offer all you can eat, but their menus aren’t always complete, and they keep changing. It’s frustrating to pay for a service that doesn’t have songs you want, and even more frustrating when songs that used to be there aren’t anymore.

I still can’t merge things I own with things I just want to stream. Nearly all music fans have songs in their collections that aren’t on any subscription service. It could be an unlicensed mashup, your friend’s band, the Beatles or Led Zeppelin. But there’s still no subscription service that lets me make a party playlist that includes both Beach House and the Beatles. I choose not to own the former, and I’ve got MP3s of the latter, but I can’t have them both side-by-side. (Spotify, for one, may be working on a remedy for this, but as far as I know it hasn’t gone live anywhere yet.)

Ownership of music still provides a smoother listening experience. Try listening to Pink Floyd’s “The Dark Side of the Moon” or any live album with applause between songs on these services, and you might start wondering where your CD player is. When the next song doesn’t load fast enough to pick up where the previous one leaves off, you’ll hear an abrupt silence –- a major turnoff during album-length pieces with continuous “banded” tracks that run together. When I use iTunes, there’s sometimes an audible seam but no pause, with an option to crossfade; physical formats have no such issues. In this respect, the cloud-based experience can be a degraded one.

I can only share music with fellow subscribers. If playlists are the new mixtapes, as Spotify CEO Daniel Ek said this week at SXSW, I’d like to share them with my friends. In a market as fragmented as music-as-a-service is shaping up to be, playlist sharing won’t be that compelling until we’re all using the same service — or at the very least, compatible ones. This isn’t as big an issue when there’s a free component, as with Spotify and Rhapsody, but in general, until a critical mass of my friends are subscribing, there will be better ways to share. (I miss you, Imeem. You too, Muxtape.) The MP3 file is very flexible; cloud-based subscriptions still aren’t.

I can still hear things that I don’t already own without paying for them. I’ve already got a lot of music, and there are still new records I’d prefer to own, and for which I will happily pay. (You might be very different.)  But I can also hear an awful lot of on-demand free music via both legitimate and legally questionable channels: Hype Machine, Lala.com, Grooveshark, Play.me, YouTube, Blip.fm, FreeAllMusic, BeeMP3.com, Skreemr, MySpace and elsewhere. Pandora and Last.fm help me discover things through a sort of customized serendipity, while the blogosphere provides curated discovery. Yes, an on-demand subscription gives me more, sometimes in a better-quality experience. But for things I might not choose to own, free options are often still good enough. (Remember, more than 95 percent of Spotify’s users think the free version is good enough, too.)

Music subscriptions are improving, and I imagine that most of my quibbles will be dealt with in time. (See my further discussion of the services in this GigaOM Pro piece, sub req’d.) But for now, I still view subscription services as supplementary — not primary — sources of music, and ones that haven’t done much to change my preference for a hybrid of music ownership and free options.

As I said, I’m a voracious music listener with varied but quite specific tastes. And if subscription services’ numbers are any indication, there are millions of subscribers out there who are quite satisfied with what they’re paying for. So I’d love to hear more about how subscriptions work for you -– or don’t.

Post and thumbnail photos courtesy of Flickr user itchy73

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Music subscription services promise unlimited access to enormous libraries of songs, typically on the order of 6-10 million tracks. And while a few superstar artists are famously absent from streaming services as well as Apple’s iTunes -– the Beatles and Garth Brooks among them -– my experience testing out several services has left me frustrated in other ways.

Indeed, there are plenty of empty trays at the all-you-can-eat music buffet, though some will leave you hungrier than others. Use one for awhile, and the gaps in its catalog soon become apparent. Try two or more, and the inconsistencies among them become downright baffling.

Most of the services claim to provide access to the full digital catalogs of all four major labels and a slew of independently distributed recordings, most delivered via aggregators such as IODA and the Orchard. But why is MOG missing the first two Tom Petty albums, while Thumbplay has them all? Why does Spotify – at least the preview version I’m testing here in the U.S. – have only two or three Bob Dylan albums, when its competitors have dozens? Why is Rhapsody the only one that has Grizzly Bear’s “Veckatimest,” an acclaimed independent-label album that entered the Billboard chart at No. 8 last June?

As I’ve learned from conversations with subscription providers, obtaining a complete and stable catalog of music is hardly as simple as working out a contract with a label or distributor. Songs and albums are constantly blinking in and out of view as ownership rights change hands, reissues are prepared, and songwriters and performers change their minds as to where they want their songs to be heard. Some labels handle their own distribution rather than going through aggregators, meaning that individual deals have to be struck in order to make their catalogs available. Geography can be a factor, as licenses vary from country to country. What’s more, a glitch in something as simple and unsexy as the file metadata that identifies a song –- a missing capital letter here, a misspelling there –- can render a track invisible to the consumer, even if it’s properly licensed by the subscription service.

Filling holes in the catalog is time-consuming and labor-intensive. (As MOG’s director of content licensing, Buzzy Cohen, told me, “Finding the holes is harder than filling them in.”) Companies with deeper financial resources and more personnel will have the upper hand when it come to chasing down rights holders one at a time in an effort to maintain a more complete catalog, so it makes sense that the older companies are more successful at it than the new ones — and explains why Rhapsody’s service, which has been around for more than eight years, satisfies my searches more consistently than any of its upstart rivals.

Though the causes are manifold and the companies’ efforts to fill the gaps are admirable, it’s frustrating to music fans when our searches aren’t satisfied, and even more irritating when songs in a playlist disappear without warning. And as consumers choose from among several services — or choose not to subscribe at all — holes in the catalog can ultimately be a dealbreaker.

Post and thumbnail photos courtesy of Flickr user samsmith

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Music service MOG lifted the lid on its new mobile applications this morning at SXSW, promising premium subscribers the ability to stream any song, anytime, anywhere, on both iPhones and Android devices. With the new apps, scheduled for launch early in the second quarter of 2010, MOG becomes yet another company that will offer ubiquitous on-demand access to a large library of songs, following Thumbplay’s launch earlier this month and Rhapsody’s last year -– and representing a further erosion of opportunity for Spotify, the European streaming music provider whose U.S. launch has still failed to transpire.

MOG’s cloud-based mobile service will cost $10 a month, double that of its well-received desktop-only product, which features custom radio and playlisting in addition to the on-demand component. Music service providers, including Rhapsody and Best Buy-owned Napster, have long hoped that adding on-demand mobile access would boost consumer interest in subscribing to music, sometimes derided as renting music. To date, the Rhapsody service -– which added offline storage will soon feature offline storage to on its existing mobile apps this weekend -– has gotten little momentum from smartphone adoption.

Daniel Ek, chief executive of European streaming music provider Spotify, is scheduled to deliver a keynote interview tomorrow at SXSW, prompting speculation that the company could finally launch in the U.S. Spotify is testing the freemium model for streaming music, offering free ad-supported streams to PCs and a premium ad-free service in both desktop and mobile versions. The free product has proven wildly popular in Europe, but the company hasn’t yet demonstrated that its conversion rate — thought to be less than 4 percent in a February estimate — is high enough to satisfy record labels.

Since last summer, when the extremely well-funded Spotify began gearing up for entry into the U.S. market, content owners have soured on free streaming, and called Spotify’s freemium model into question. Warner Music Group chief Edgar Bronfman Jr. recently said the label wouldn’t support “get-all-you-can-for-free” models in the future but remained happy to work with subscription services. Spotify long ago admitted that its model might look different in the U.S., and I’ve been hearing for months that a free version with all four major labels on board is unlikely to appear stateside.

Spotify’s desktop product is wonderful, but the European market has already shown that it’s more compelling as a free product than a paid one. If it’s to be just another subscription service in a crowded field on this side of the pond, Spotify may have fumbled a potential early-mover advantage by holding out for a licensing agreement with labels that would allow a sustainable free version. Running afoul of content owners and squandering a head start can really bring a company down, and in Spotify’s case, doing so has given other innovators an opportunity to sign up paying customers. That may be why investors on both sides of the Atlantic have doubled down on MOG.

For the GigaOM network’s complete SXSW coverage, check out this round-up.

When it was first unveiled, Apple’s new iTunes LP format -– codenamed “Cocktail” and introduced at a “rock and roll event” in San Francisco -– promised to give consumers a new reason to buy albums instead of individual songs. Offering expanded cover art, lyrics, videos, animation and other digital goodies, iTunes LP was intended to evoke the feeling of spinning an LP record and holding the jacket in your hands. Especially when paired with a tablet computer (then rumored, now real) that would provide a new way to view large-format art, consumers were promised a digital experience that mimicked a physical one.

Six months later, however, iTunes LP doesn’t prompt much consumer recognition, and none of the industry sources with whom I spoke said they viewed it as being anywhere close to game-changing from a format perspective. Rather, it’s considered more of a curiosity. Like an enhanced CD or a DVD packaged with a physical album, iTunes LP’s bonus materials may interest super-fans, but they aren’t generating much buzz among mainstream consumers, and don’t appear to be stimulating LP sales at all. “It’s something most people will look at once,” is how one person put it.

It’s somewhat ironic that the very company that atomized the album in order to sell individual tracks -– one of many causes for the music industry’s decade-long tailspin –- has encouraged the rebundling of songs with iTunes LP. But I’m told by an industry source who preferred to remain anonymous that iTunes LP wasn’t Apple’s idea in the first place. Rather, it’s the result of the same renegotiations between Apple and the major record labels that yielded DRM-free songs and flexible pricing early last year, a concession by Cupertino to make a gesture in favor of album sales as consumers increasingly show a preference for digital singles.

One person who worked on an iTunes LP project said Apple subsidized the initial group of LP editions, which were created by the company’s handpicked third-party developer at costs of up to $60,000. All are issued in “deluxe edition” releases that feature extra tracks, typically priced a few dollars higher than iTunes’ customary $9.99. Neither Apple nor anyone else I spoke with was able to break out sales figures, but sources in various parts of the music industry agreed that the financial impact of iTunes LP on record sales has been tiny, if it’s had any effect at all.

Only 29 LPs are currently for sale in the iTunes store, about a dozen of which were available when the format was launched. Several are catalog albums, meaning that only a couple of new releases each month appear as iTunes LPs. The same person who participated in an iTunes LP project said, “If it costs $50,000 or $60,000, we’re not going to do it again,” although at the same time, acknowledged that Apple’s extra promotion of the release in conjunction with iTunes LP helped it become a moneymaker after all.

Not every project will cost so much. Apple opened a developer kit for iTunes LP in the fall, enabling artists to craft album packages independently. Direct-to-fan marketing tools developer Topspin Media handled a December release for Pixies spinoff band The Everybody, touting it as the first iTunes LP release sold outside the iTunes store. But a Topspin spokesman told me interest in iTunes LP was generally quite meager among artists with which Topspin had worked.

Although the format was initially seen as tailor-made for tablet computing, Apple hasn’t yet done much to promote the iPad as a music device. When Jobs stepped onstage again in January to introduce the iPad, iTunes LP was barely present. The music segment of the presentation was less than 60 seconds long, and although an iTunes LP was visible as Jobs spoke, he never mentioned the format. No one I spoke to said the imminent availability of the iPad had generated interest in new iTunes LP projects.

As it turns out, most artists and labels are pursuing a different avenue for their digital goodies: iTunes’ wildly popular App Store. Numerous artists have released lyrics, videos and other content in both free and paid apps, which also serve as channels for artist news and can be updated with new content anytime.

It’s still possible that once a few million iPads are in consumers’ hands, and with a few more ambitious iTunes LP releases — like the 760-megabyte package for the new album from Gorillaz — the format will prove to be an essential component of a digital album. It’s also possible that iTunes LP will continue to have a miniscule financial impact on record sales, merely providing a small bonus for a dwindling audience of album-oriented fans. At least with its effort and investment in the format, Apple can say it made a redoubled effort to undo the damage it did to last century’s record industry by selling songs one at a time.

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Hot Topic: Apple’s iPad

The music subscription market may be unproven, but it sure has seen a lot of action over the past few months. And today, with the launch of its mobile app on BlackBerry devices today, Thumbplay became the latest company hoping that anytime-anywhere access to on-demand music will make consumers pay a flat fee for an all-you-can-eat service — in this case, $9.99 a month.

As it enters public beta, Thumbplay’s music subscription service becomes the first to launch simultaneously on desktops and smartphones. The company’s deep mobile experience is one key differentiator that sets it apart from incumbents such as Rhapsody and Napster as well as upstarts MOG and Spotify, the latter of which hasn’t launched in the U.S. yet.

CEO Evan Schwartz told me half of Thumbplay’s installed base is now using smartphones, and the company already counts hundreds of thousands of customers for its existing mobile entertainment subscription service, which offers ringtones, wallpapers and other goodies. Online radio provider Pandora, for one, has shown how mobile phones can drive user adoption of a music service, and Thumbplay may have some advantages as a result of its presence on smartphones.

As an iPhone user, I wasn’t able to test the  mobile app, but I did get to survey the desktop version (screenshot below), an Adobe AIR-based client that was up and running quickly after a brief installation. Thumbplay’s library, said to comprise 8 million songs from all four major labels and numerous indies, showed some gaps (no Arcade Fire?), but I found that the songs loaded quickly and played without interruption. If it can replicate that experience on mobile devices — and early reports suggest that the BlackBerry app may still be buggy — Thumbplay will have a real contender, given that Rhapsody ($14.99) and Spotify (€9.99 in Europe, or $13.56) are charging more for the anywhere-anytime experience. Thumbplay also offers smart playlisting built on the Echo Nest’s music brain, delivers instant syncing between desktop and phone, provides offline caching on mobile devices — good for airplanes and train tunnels — and allows users to import iTunes playlists.

Schwartz said Thumbplay reached profitability around the middle of last year, and has reportedly raised $61 million from venture investors. The company’s expansion to include a full-track music service is in line with forecasts suggesting that the market for ringtones has already peaked, and that consumers will soon expect a more complete music experience from their mobile phones. Spotify’s imminent U.S. launch will probably still make the biggest splash, but given its large installed base and understanding of mobile behavior, don’t count Thumbplay out.

Music subscription service provider MOG has raised $9.5 million in a new round of venture funding, with UK-based Balderton Capital joining lead investor Menlo Ventures, an existing stakeholder, in the round. The new money builds on at least $12.5 million in existing funding, including investments from major labels Universal Music Group and Sony Music.

The choice of Balderton as a new investor gives MOG a beachhead in the UK, where it plans to launch its service this spring. The company is also planning to introduce a series of mobile applications in the coming weeks, and is exploring integrations with networked consumer electronic devices, including set-top boxes.

MOG raised $5 million last summer, prior to the introduction of its all-you-can-eat streaming music service in early December. David Hyman, CEO of MOG, said the company will use some of the funds for an aggressive consumer marketing strategy intended to win over new users. MOG plans to extend its free trial period from one hour to three days in order to encourage new signups; the company says it’s currently converting 17 percent of trial users to paying customers.

MOG, whose service allows on-demand streaming of nearly 7 million songs from all four major labels and numerous independents, is preparing to launch iPhone and Android applications by April. MOG’s desktop service currently costs $5 a month, but Hyman has said the mobile version will cost more.

With the UK launch, MOG will enter a market in which Spotify’s free service has won considerable consumer attention but relatively few of its fans have become paying customers. Rumors have suggested that Spotify may launch in the U.S. as soon as next month’s SXSW conference, although the stateside version may lack the free tier in favor of a monthly subscription fee similar to MOG’s. Warner Music Group chief Edgar Bronfman Jr. said earlier this month that the label is no longer interested in working with free streaming services, but remains in full support of subscription models. Warner holds a small equity stake in MOG, but has never invested cash in the company.

Edgar Bronfman Jr.

Warner Music Group president Edgar Bronfman this week articulated what we’ve known for quite some time: that major record labels have lost confidence in the free streaming model for music consumption — and, by extension, the freemium model. A BBC story this morning, and other reports since that time, amplified Bronfman’s conference call statement to imply that WMG plans to pull its songs from existing streaming music services, naming several candidates.

Bronfman put it this way:

“[F]ree streaming services are clearly not net positive for the industry, and as far as Warner Music is concerned will not be licensed. So the ‘get all your music you want for free, and then maybe with a few bells and whistles we can move you to a premium price’ strategy is not the kind of approach to business that we will be supporting in the future.”

Based on the context of his original quote, Bronfman appears to be willing to experiment with paid subscription models, but is pained by free streaming services and their freemium counterparts. That said, I doubt that WMG plans to cripple existing services like Spotify or Pandora by yanking its songs – at least not in the short term. Spotify, for one, has already told its Twitter followers, “WMG is not pulling out of Spotify,” and that media outlets are overreacting. And while the BBC story and others name non-interactive streaming service Pandora in the same breath as on-demand ones, the spirit of the quote seems far more squarely aimed at the freemium model than at Internet radio providers. Pandora should be just fine.

But while WMG may not be ready to pull content from streaming sites just yet — particularly after withdrawing from YouTube for several months last year — it may be ready to stop some services from growing, especially in new markets. Bronfman’s quote didn’t name Spotify, whose entry into the U.S. has been anticipated (and delayed) for months, but it might as well have. Spotify’s free ad-supported version, which has created fanatical fans across the pond, now seems unlikely to appear in the U.S., which would mute a lot of buzz around the company. With the premium edition used by only about 3.6 percent of its installed base in Europe, there are still a lot of freeloaders for every paying customer — too many to produce satisfactory returns for content owners.

At least one record executive said recently that Spotify’s model is sustainable in some territories, but Bronfman’s quote sounds like a vote of no confidence that the same thing will happen in the States, from someone who can effectively stop a launch singlehandedly. The trouble is, while free streaming doesn’t work well enough to please record labels, it sure does work for consumers — and taking away what used to be free has never sat well with them. Back to the drawing board.

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