Music: place-shifting’s next frontier

While the wireless world and “Apple fanboys” wait breathlessly for the iPhone, Daren Tsui is hoping to turn mass-market phones already on the market into on-the-go digital music players.
The CEO of mSpot this week plans to unveil its Remix software, a kind of place-shifting application for music fans. The downloadable offering allows users to access their home music libraries, streaming-and storing-tunes from a PC to a wireless phone.
“While that streaming is going on, in the background you save a copy of that song so you can claim it locally” on the phone, said Tsui. The software automatically converts high-bitrate songs that aren’t wrapped in DRM software into a lighter, mobile-friendly format, and works with the three major music coding technologies of MP3, WAV and AAC.
MSpot has gained substantial traction in North America since Tsui co-founded the company two years ago. The Palo Alto, Calif.-based startup powers mobile music and video services for customers including Sprint Nextel Corp., Bell Mobility and Telus, and the firm recently upgraded its platform to include a community feature that allows users to recommend content to friends.
Remix has yet to hit the market-Tsui said he hopes to bring the product to market this summer for less than $10 a month-and mSpot is still working to secure its first operator deal for the software. Whether carriers will welcome mSpot’s new offering, however, is uncertain. Both Sprint Nextel and Verizon Wireless are struggling with their own music services, operating branded mobile music storefronts and charging a premium for over-the-air downloads. But only 2.3 percent of subscribers downloaded songs in the third quarter of last year, according to Telephia, and M:Metrics claims only half of 1 percent of all U.S. users downloaded a tune in November.
The lack of uptake underscores operators’ struggles to find a viable price point for over-the-air downloads. Subscribers seem unwilling to pay a premium of 100 percent for on-the-go purchases, but razor-thin margins from digital music sales may preclude carriers from competing with Apple Inc.’s iTunes service and the 99 cent-per-song standard it has established in the marketplace.
“Clearly (Apple’s) emphasis is on the selling of hardware rather than content,” Analyst Insight’s Nick Holland wrote in a recent research note. “Whereas Apple’s focus is on revenue generation from hardware sales, 99 cents presents a significant barrier to entry for newcomers to the market basing a business purely around content-driven margins” for wireless operators.
Which is why Tsui is optimistic he can find a carrier partner or two for Remix. The overwhelming majority of songs on iPods are side-loaded, he points out, and consumers are far more likely to move songs from their PCs to a phone than they are to pay a premium for an over-the-air download.
“The key is trying to figure out how to make money outside of full tracks,” said Tsui. “Steve (Jobs) is not banking on the fact that he’s going to make billions of dollars selling iTunes; the margin is so bad on that service that he’s hardly making anything. … We don’t really think this will cannibalize anything.”
And while he certainly will work to avoid drawing the wrath of wireless operators-mSpot’s business is built on white-label offerings for carriers, after all-he may have a trump card. MSpot could offer Remix directly to consumers, cutting carriers out of the deal entirely. Such efforts are becoming increasingly threatening to operators, of course, as developers such as Sling Media Inc. and Orb Networks gain traction with place-shifting software that allows users to watch home TV broadcasts on their phone.
“I think direct-to-consumer is still a possibility; we would consider that,” Tsui said. “The only thing is that when you go it alone, you have to commit a lot of marketing dollars.”