Last updated: February 28, 2010 11:26 pm

Spotify-MOG battle heats up

Competition between Spotify and MOG is intensifying as the digital music services race to win support from investors, record labels and listeners.

The transatlantic rivals, aided by two veterans of the online music industry, are both raising new funds to build a service which they hope will lure fans away from piracy and provide a revenue stream for the music industry as CD sales fall.

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MOG announced $9.5m in new funds from Balderton Capital, a London venture fund, and Menlo Ventures. Based in California, MOG is led by David Hyman, who sold previous digital music ventures Gracenote and SonicNet to Sony and MTV respectively.

It counts Universal Music, Sony Music and Rick Rubin, the record producer, among its investors. Its $5-per-month “all you can eat” music service launched in December has proved a hit with technology blogs such as Techcrunch.

The funds, on top of more than $10m in prior investments, will help it expand into the UK, where it has yet to secure rights from the main labels.

Dharmash Mistry, partner at Balderton, said MOG was the first subscription music service to offer a combination of radio-like “passive” listening, playlist creation and community capabilities.

But MOG will face entrenched competition from Spotify, which has attracted 7m European users of its free advertising-supported music streaming service since launching in October 2008. More than 250,000 people pay a £9.99 ($15) monthly subscription to access its millions of tracks from their mobiles and without ads.

In spite of raising $50m from last year from Li Ka-shing, the Hong Kong billionaire, Wellington Partners and Northzone Ventures, its plans for a launch in the United States have stumbled as record labels cool on the idea of advertising-supported music services.

Edgar Bronfman Jr, Warner Music’s chairman, said last month that the label would not license any more free music services because they generated insufficient revenues.

So Spotify has turned to the business brains behind the original Napster music-sharing service for help in winning the labels over in the world’s largest music market. Founders Fund, a California firm, has invested a small amount in Spotify, with fund principal Sean Parker taking a board seat, people familiar with the deal said.

Mr Parker co-founded Napster in 1999. After the record industry’s piracy lawsuit forced the Silicon Valley company into bankruptcy, he went on to found Plaxo and serve as president at Facebook but maintained good relations with label executives.

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