have a way for Android users to tap into the iTunes market. But I feel the right and ultimate solution is going to be a solution like mSpot. I hope there is still an opportunity to work with Google—as a matter of fact we deal with the Android team on a weekly basis and we are told our solution is superior to Simplify and that we should not worry.
On the Apple side, I think Apple is going to have a difficult time relaunching the Lala service as it was before they shut it down. Here is the subtlety between Lala and us: we physically move your MP3 up to the cloud. So if there is a skip on your computer, you are going to hear that same skip in the cloud. We feel that because you own the songs already, and we are basically just moving it to a storage locker in the cloud, that is fair use. The way Lala works, it first indexes all of the music on your computer, and if they can make a match, they don’t actually physically move your song to the cloud. They say “Wade has a song from Black Eyed Peas, and we happen to have that song, and we are going to play it from the master file.” Because of the way they structured it, someone has to pay the label for the song that’s being streamed.
It was okay for Lala because they never really reached scale, so the amount of money they had to pay the labels was nominal. But imagine Apple doing that. If it scales, they are going to end up owing the labels billions of dollars. They could try and negotiate with the labels, but I just don’t see [the labels] playing ball. Apple could redesign the service to something that is more like an mSpot architecture, but I doubt they are doing that. I can’t imagine them buying Lala just to scrap the technology and do an mSpot. So I think there are going to be a lot of issues. Meanwhile we are going to keep innovating and address the Apple base and hopefully we will reach escape velocity before Apple figures out what it wants to do.
X: You’ve said a couple of times now that you “believe” the storage-locker-in-the-cloud model that you’re building constitutes fair use, and that nobody will owe the labels any money, becuase users are just playing songs they’ve already bought. What’s the hesitation? Is this a question that’s yet to be resolved, legally?
DT: I think there is a lot of confusion in the market in terms of what falls under fair use and what doesn’t. Currently we are negotiating with the labels to try to figure that out. I think it’s yet to be determined how this whole thing is going to shake out. We are taking a very firm position, though, just so you know. The music file service, as it is currently architected in the beta program, does fall under fair use. We don’t feel like we need to apply any additional licensing to do this. That is our very firm position.
Your question may be, will the labels come after us once we come out of beta? That is absolutely possible. I hope that doesn’t happen. We have had a very good relationship with the labels. We take IP issues very, very seriously with all of the music services we have launched before. When we feel we need licenses, we go out and buy the licenses. But if they are going to come after us, I can’t stop them.
X: In terms of financing, does mSpot need to raise more money to pursue this vision of a cloud music service, or are you building it on top of revenue from the service provider business?
DT: We absolutely don’t need any additional investment right now. We raised a very small series A round back in 2005 and we have been profitable since, so we have a pretty nice little war chest, in terms of cash in the bank that allows us to experiment and do more projects that may not have near-term revenue. The only situation where I could see us possibly going out and raising some more venture [capital] is if we wanted to accelerate our growth even more. For example, we think the music cloud service has a lot of appeal overseas. When you want to go global, you want more resources. That would be one scenario. But with our current operation we don’t need to raise money.
