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Online Music Services Compete For Small Pool Of Investment Capital

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Online Music Services Compete For Small Pool Of Investment Capital

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Online Music Services Compete For Small Pool Of Investment Capital

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Music fans have enthusiastically flocked to the Internet to find the songs they love. Investors have been less enthusiastic. Very few have found a way to turn all that downloading and streaming into dollars. Now, as NPR's Laura Sydell reports, there are some signs that could be changing a little.

LAURA SYDELL: The road to success in the online music industry isn't so much strewn with abandoned cars as it is with a bunch of idling vehicles. Services like Rhapsody for which you pay a monthly subscription fee to stream a library of songs have 750,000 subscribers and holding.

Spotify, another subscription service based in Europe, has 10 million people who use it for free by watching ads, but only 1 million paying subscribers.

Still, Drew Larner, President of Rdio, a newly opened subscription service, is ready to hit the road.

Mr. DREW LARNER (President, Rdio): If I were to say this was going to be easy and, you know, it was going to happen like that I would sound naive.

SYDELL: What's making Larner optimistic is that technology, especially mobile tech, is evolving in ways that he thinks will make subscription services more appealing. Specifically...

Mr. LARNER: The adoption of smart phones and the increasing ability of those smart phones to deliver a great experience because of connectivity and the capacity on these phones.

SYDELL: Rdio has nearly 8 million songs available for streaming in any order you like for ten dollars a month. The company's Marisol Segal was watching "American Idol" the other night.

(Soundbite of song "A House is not a Home")

Mr. JACOB LUSK (Singer): (Singing) And a house is not a home.

Ms. MARISOL SEGAL (Rdio): This guy sung this Luther Vandross song. And I was like, oh my gosh, I want to listen to Luther Vandross right now. And I grabbed my phone while I was watching Idol and synched Luther Vandross to my phone so that in the morning when I was going to work I could listen to Luther.

SYDELL: Segal can also stream those songs from the web on her computer or through a connected TV.

Ms. SEGAL: So I've kind of got it where ever I need it to be.

SYDELL: The company, which was founded by the creators of Skype, just got more than $17 million in venture capital funding. Pandora, the streaming online music service, reached profitability and it's about to go public.

Songkick, which lets fans track artists they like and buy concert tickets, just got nearly $2 million in extra funding. And this week MOG announced a deal with BMW to put its on-demand streaming service in cars, using a smart phone plug-in.

But, there have been a lot of failures and that's kept many investors away. Mike McGuire, an analyst with Gartner, who follows online music, notes that many of the companies are offering very different kinds of service, whether it be ticket sales or streaming music or downloads. He thinks real profitability will require those companies to offer all of these services together.

Mr. MIKE MCGUIRE (Gartner): Beyond simply providing the music, which is a great service, but also finding those other music-related transactions opportunities that can be kind of layered into the platform.

SYDELL: But, there are a lot of investors who still remain wary of anything connected to music online or otherwise. David Pakman, a venture capitalist who was an early investor in eMusic, is keeping his checkbook in his pocket.

Mr. DAVID PAKMAN (Venture Capitalist): I don't think that there's a promised model that revitalizes everything and makes this a lucrative market segment.

SYDELL: Pakman notes the following: overall music sales were down more than 2 percent last year. And the industry's great hope, digital downloads, were flat. He points out that Apple's success with iTunes hasn't really been financial. The company's money comes from iPod, iPad, and other hardware sales.

The four major record labels, while more open to licensing to online companies, haven't exactly made it easy.

Mr. PAKMAN: You still have to pay advances. Essentially as a start up you still have to take all the risk.

SYDELL: Pakman is not exactly sold that mobile technology will make online music a profitable business when so many people have gotten used to getting their music for free.

Laura Sydell, NPR news, San Francisco.

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