A crowd of hooded kids packs in tightly from the stage to the doors of the outside patio at the club known as Mohawk in chilly downtown Austin. Hundreds more music fans are braving freezing gales upstairs on Mohawk’s mezzanine. Not many of the kids beneath these hoodies know the name or business model of the young Berkeley tech company Mog, which is responsible for throwing this free, killer party. But everyone here knows the Black Keys, and that’s the point.
“Have love/will travel!” howls lead singer Dan Auerbach, picking his guitar in front of a Mog banner. Scorched overdriven blues roar from the stage. Behind him, drummer Patrick Carney bashes his tiny kit like some primitive savant: simply, yet deadly accurate. Even with the teeth-chattering storm clouds overhead, the outside event is proving a huge success. Lines stretch down the street and around the block — and that’s a crucial thing for Mog.
The four-year-old Berkeley tech company is gambling $12.5 million of venture capital in an effort to gain millions of subscribers for its new web music service. Mog has come to the number one music conference of the year and spent $75,000 on promotions alone this week, including booking the Black Keys atop an A-list lineup that also includes Danger Mouse and the Shins’ James Mercer and Thurston Moore of Sonic Youth. Mog is putting up its staff in a rented home twenty minutes from downtown, and they’ve turned a boring utility van into the furry, blue Mog Mobile — which they drove out from Berkeley to act as a mobile mascot during the week-long promotional blitz.
Ten years to the month after the dot-com bubble’s rise and fall, amid the most sobering economic climate in generations, this hip Berkeley company is throwing huge parties and betting big on an elusive, yet irresistible idea: music in the clouds. The company’s success would redefine the consumption and distribution of music as we know it, and possibly even its creation.
Cloud music is a deceptively simple idea: all the world’s music, any time you want it, anywhere you want it, as much as you want, streaming with one-touch from the Internet (dubbed “the cloud” because it’s essentially everywhere). But the Internet is littered with the carcasses of companies that have attempted to bring this idea to life in one form or another, including the first iteration of Napster and San Francisco’s promising iMeem. Meanwhile, Rhapsody and eMusic limp along. Yet Mog thinks it can succeed, and this year is in many ways its moment to break out or bust. And that depends, in many ways, on its founder, David Hyman.
Hyman is a veteran dot-commer who looks like he doesn’t get much sleep. He’s been flying back and forth from Austin to Berkeley all week running press conferences and gladhanding — his natural milieu. Tall and thin, with expressive eyes and a gravelly voice, the 42-year-old entrepreneur helped start Gracenote in Berkeley in 1998. The company went on to dominate the music recognition software business, and Sony purchased it in 2008 for $260 million. Anytime you put a CD into a device and the name of the artist, album, and song automatically appear, it’s probably Gracenote. Its music fingerprinting technology is everywhere.
Hyman has these naturally occurring larynx nodules, like the kind found on hardcore punk vocalists who scream too much, and they give his voice the impression that he’s been up all night talking up his latest company. He loses his voice easily, and this week is going to be a challenge. Mog is his new baby, founded four years ago as a music technology company with no music.
“I like to say we went backward,” Hyman mused. “We built an entire music technology company from the ground up with millions of users — but had no music.”
Indeed, Mog started in 2006 as just an idea. Hyman wanted to start a company that made cool tools for music bloggers and aggregated their content, so he printed up flyers and handed them out on the corners of Austin at South by Southwest that year.
“It was like my manifesto, and I sat on the corner and I gave it to everyone. ‘Mog is coming!’ all handdrawn and cut out myself. I felt like I had to do it.”
“Mog” is an amalgam of the terms “music” and “blog.” (It’s also the species of Man-dog played by John Candy in Spaceballs, but that association does not appear to be intentional.) It went on to power thousands of music blogs over the next four years, becoming the de facto hub for these influential sites. Mog also created an ad network to sell and serve ads on the music blogs, and today, the company touches 16 million unique users every month. Still, Hyman recalled, without legal music, the company sort of hit a wall. He and his colleagues went back to the white board and decided to shoot for the cloud.
Hyman said there are three main components to Mog’s new business plan. The first is to make the Internet’s best web site for easy, quick listening to all the world’s music. Second was to fill that site legally with said music through licensing deals inked with all the major and minor music labels. Third was to get the whole thing running on the iPhone and other smartphones, the new holy grail of technology companies. Such phones have supercharged the growth of Oakland music company Pandora, and today everyone has to be on the platform.
First, the company built a slick, fast site with some of the web’s most current technologies, like the fast and scalable Ruby on Rails platform, and Ajax, which also helps with speed. It took two years and, though fraught with problems, was not the hardest part.
Next, Hyman had to use all his industry contacts and goodwill from working at Gracenote and other prior ventures to convince the major record labels to pay attention to him and then make a deal.
“To have the rights to the music, for a startup, is not easy,” Hyman said. “It’s not easy.” Hundreds of start-ups clamor for the attention of a handful of executives, and most don’t even get a meeting. “The relationships that I’ve had with them and the trust I’ve had really helped,” he said. “We built a product, and so I was able to go in and show them this beautiful thing. I was able to get the meeting. I was able to show them, ‘Hey we built this, if you give me the licenses, we could give this to the public and we’ll all be the benefactors.’ It was the kind of thing where they said, ‘You know, there’s an opportunity here. This is a really good product. We want to enable you.’ It comes down to faith.
“It’s a lot like being an artist,” he added, “and spending years developing a skill and not knowing whether you’re going to get a deal.”
In 2009, Mog inked deals with all four majors and a huge majority of the minors, resulting in a 7-million-song catalog that grows by the day. On December 2, 2009, Mog launched Mog All Access. Mog board member and super-producer Rick Rubin helped with the name, Hyman recalled. Now, anyone can open up a web browser, navigate to Mog.com, and start listening. Type in “Sade” and Sade starts playing. Not just one song by Sade, but Sade’s catalog in one big radio playlist automatically generated by the site. A slider on the jukebox will leaven similar artists into the playlist. Slide the slider to the middle and Seal may start popping up in your playlist. Slide it all the way over and the playlist could go as far afield as some downtempo Massive Attack.
“It’s the first real, unrestricted radio product compared to things like Pandora,” Hyman said. “It just blows it away. We’ve given people better radio. You can jump ahead, save songs, and directly control the playlists. If you want Bob Marley radio you get Bob Marley 24-7, a dedicated radio station for every artist that just plays that artist.”
New users can sign up for a three-day trial of All Access. Hyman says 17 percent of people who try the service for three days elect to purchase it for $5 a month. The low rate is a result of generous licensing agreements Hyman negotiated privately with major record labels. The labels are generally loathe to do such deals, yet they’ve displayed enormous faith in the Berkeley company. In 2008, Universal Music Group and Sony BMG even joined the ranks of Mog’s investors, which include Menlo Ventures and Simon Equity.
Mog won’t disclose how many subscribers Mog All Access has garnered since its launch, but Hyman says people love it, even though he only sees its flaws.
“Considering we’ve been out the gate for a little over two months, yeah, I’m happy, but do I want millions of users? We’ll get there.”
The third component of getting there is in the palm of people’s hands at the Mohawk.
The advent of so-called “3G” smartphones — with their fast microprocessors and higher capacity for transmitting data through the air — has become a game changer in the technology industry. Apple rewrote the playbook for cell phones with iPhone, and Google has tacitly endorsed Apple’s vision by crafting a smartphone of its own, the Nexus One, which runs on Google’s easy-to-program, open-to-the-public Android operating system. Applications running on smartphones represent the next Internet bubble, with thousands of them being sold, and tens of thousands more in development. Mog hopes to ride the 3G wave this summer when it introduces Mog All Access Mobile for iPhone and Android phones, the same way Pandora’s userbase exploded when it released its own app.
Mog officially unveiled Mog All Access Mobile, Monday, March 15, in Austin to a crowd of rapt music bloggers and techies. The result of some hard-core label negotiations behind the scenes, the service costs $10 a month, and is basically like the desktop version, only you can take it wherever you want to go. Furthermore, you can download as much music as you want from the cloud to store on your smartphone, so you still have access to your tunes even when cell phone and wi-fi reception has long died.
Mobile product manager Anu Kirk walked the crowd through a videotaped demonstration of All Access mobile for iPhone and Android OS, showing how it launched, searched, browsed, downloaded, and played. Voice commands worked on the Android version, and the streams sound good at the standard 64 kilobits per second, but pristine with the free option to download at album-quality 320 kilobits per second.
“Getting Mog radio in the car blows away XM or Sirius,” Hyman said, and the crowd seemed similarly blown away. The one big question of the press conference centered around whether or not Apple would approve such an app. Apple runs a tightly restricted marketplace and is the sole gatekeeper of it. Mog All Access Mobile can be considered a threat to Apple’s music service iTunes. “We’ll have to wait and see,” Hyman said. “To date, Apple has not turned down subscription applications.” Meanwhile, Mog’s Android app is expected to be easy, and they intend to hold it for concurrent release with the iPhone app.
The demo went off without a hitch and the crowd was left more dumbfounded than skeptical. Now it’s just a matter of time before All Access Mobile launches and takes the world by storm, right? Hyman can’t be so sure. Cell phones remain unreliable, Mog’s music library could be even bigger and more comprehensive than it is, and recession-weary consumers could scuttle Mog’s plans in 2010.
For starters, Mog doesn’t yet have all the world’s music. It has a lot, but, for example, it doesn’t have any Beatles, AC/DC, or Radiohead’s self-released In Rainbows. Some music licenses are easier to get than others. Some are impossible. The world’s music is tangled up in a rat’s nest of paperwork, and there’s no way any single company can truly have it all. Mog has a full-time staffer tasked with filling the gaps, but even with his best efforts, really obscure searches can be frustratingly fruitless. Rhapsody, iTunes, eMusic and everyone else have to deal with the same problem, and such holes in the catalog can be a turn-off to elite users.
Furthermore, these elites can find anything they want online, if they know where to look, and spend the time pilfering it.
But Hyman says people with no jobs who spend all day stealing music aren’t in Mog’s core business plan. “I’m not going to get the guy who spends $3 a month on music,” he said. “Pirating takes time. When I was in college I had time. I was an obsessive Grateful Dead collector and I would spend my entire day looking for tapes. I had all the time in the world. I didn’t go to class. Now, I don’t have time for anything.”
Mog is banking on the Baby Boom generation, the moms and dads of the hooded kids at Mohawk watching the Black Keys; mainstream listeners looking for a fast, slick way to enjoy mainstream acts. So what’s Mog’s plan to get these soccer moms? Targeted advertising, Hyman says.
Say someone types in “Sade” into Google. Thanks to targeted ads, they stumble onto Mog’s Sade page online. With enough targeted ad buys, Mog hopes to amass millions of converts to pay for the targeted advertising, company operations, and label royalties. But it’s no sure thing.
Furthermore, the number of fast cell phone connections in America is still low, and Mog has no control over how fast this grows. “A lot of our success is built on the speed in which people adopt 3G phones,” Hyman said. “More people are going to pay for Mog mobile than for desktop. It’s just what people want. We’re riding the wave of 3G introduction and some of that is out of our control. And I think a lot of our speed at which we can acquire customers are tied to that. And I also think it’s tied to the price point.”
Indeed, $10 may be too high for music you’ll never truly own. Even all of it.
Outside Mohawk, high schoolers from as far away as Denver endorse the idea behind the company throwing them a free party, at least in theory. Sixteen-year-old CJ and Ethan rock dirty Converse, skinny jeans, flannel, and horn-rimmed glasses. They’re fans of No Age and the Black Keys, and are something like the golden demographic to marketers.
“I’m a cheapskate,” CJ said. “I wouldn’t pay for it, but on the iPhone it’ll be a service that’s immensely popular.”
CJ said he only pays for music at live shows, where he’ll buy a CD or a vinyl album the same way he buys T-shirts and stickers — as a form of economic support to the band.
His buddy Ethan notes a counter-trend to music subscriptions. Kids these days love buying expensive vinyl almost as a souvenir of their time with a band. And the liner art is cooler. “People like owning so much better than mp3. It gives you something to hold on to, as opposed to a hard drive, which can be ruined.”
Still, Ethan said, “I’d pay $10 a month for unlimited downloads.” He already listens to Pandora at school when he says he should be studying. But he and CJ are going to need nicer phones. Both of them are embarrassed to show off their cheap, Verizon clamshells. A smartphone is an expensive luxury still currently outside their budgets.
Inside the club, the Black Keys’ set concludes to thunderous applause, and as the Mog Mobile starts the grueling three-day return trip to Berkeley, the company is already working past its mobile launch. They’re getting Mog embedded in Tivo-like devices and bundled into Comcast-like cable subscriptions. It’s the newest frontier for music services, and it points to a world where access to almost all the world’s music will just be another line item on the cell phone or cable bill.
If Mog fails to achieve its intended critical mass, another company will eventually succeed. The idea of cloud music is just too tantalizing to abandon. When it succeeds, it’ll change more than how music is distributed and consumed. Hyman speculates it may even affect production. The royalties from a song’s play are replacing the royalties from its sale.
Cloud music could dethrone the album, or it could neuter one-hit wonders, said Hyman, a voracious music fan himself. “It’s not the one-hit wonder that makes the most money for artists,” he said. “It’s the thing that people play forever and ever. It might put the focus on quality.”
Now that’s a radical business model.