MSpot tries to find the sweet spot in digital music business

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It’s not what you know. It’s who you know.

That old-school adage also applies to new-school media. Just ask Daren Tsui, chief executive of mSpot Inc., a mobile music streaming company in Palo Alto, Calif.

Tsui’s company recently launched a digital music locker service that lets people upload their tunes onto mSpot’s servers and stream their music on any Web browser or Android phone. Similar to MP3Tunes, mSpot’s service gives users 2 gigabytes of storage, enough to hold between 1,200 and 1,600 songs -- for free.

What’s the catch? MSpot just wants to get to know you a little better. Once it has an idea of the songs a user listens to, it can start pitching other things such as similar music, a subscription to a music service or movies in the same vein. It’s not as far-fetched as it sounds. Anyone who’s been on Amazon.com is familiar with the pitch, ‘Customers who bought this item also bought...’

Here’s how Tsui explained it in an interview: ‘We believe we will be managing a very valuable set of user data (what music users own and listen to) that will allow us to accurately upsell products and services in a nonintrusive and secure way.’

So far, mSpot’s locker service does not pay licensing fees to music rights holders, relying on a ‘fair use’ legal argument that arguably lets people make copies of their music for personal use. In order to take the next step and sell any sort of music streaming or subscription service, mSpot needs labels and publishers to license their music to the company.

But as fledgling music companies such as Spotify can attest, that’s no easy task. The Swedish music streaming company has so far failed to persuade labels, Warner Music Group in particular, to offer a free, ad-supported service in the United States. That’s mostly because the ad revenue isn’t beefy enough to make it worth their while, music industry sources have said. And the number of people who switch from the free service to paying for a monthly subscription is too paltry.

MSpot’s Tsui is taking a different tack. If he succeeds in building a large enough base of customers who use his free digital music locker, he can offer that to the likes of Warner, EMI, Universal Music Group, Sony Music and others as a pool of potential customers.

In other words, the goods may be digital, but the money is with the people.

-- Alex Pham