Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions
Business Matters: If Big Radio Had Pandora's Royalty Rate, It Would Owe Billions

Microsoft is in acquisitions talks with music subscription service Rdio, according to various reports.

First reported by the Next Web, the rumors bring together two companies connected by a recent acquisition. Rdio co-founders Friis Niklas and Zennström previously created Skype -- and file-sharing network KaZaA before that -- which they sold eBay for $2.6 billion in 2005. Microsoft purchased Skype from eBay last year for $8.5 billion.

"We just don't comment on rumors," Rdio CEO Larner said.

Billboard's FutureSound Conference, takes place November 15-16 in San Francisco.
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FutureSound will feature keynotes from the top minds in investment, technology and music today; presentations that will offer specific solutions structured around answering the most pressing questions; and workshops.

Microsoft was equally silent. "We're not commenting on speculation around Xbox Music," a spokesperson said.

There are four reasons why this doesn't come as surprising news:

1. Microsoft could always use help improving its digital music services.
2. The price tag would probably be very reasonable.
3. Microsoft wouldn't buy Spotify at a $4 billion valuation (not even with $63 billion of cash and cash equivalents on its balance sheet at the end of June).
4. Microsoft doesn't have many other options to quickly improve its standing against competitors who also wrap digital music into either hardware (Sony) or an operating system (Google).

Acquiring Rdio would allow Microsoft to accelerate its digital music ambitions. The company is already working on its Xbox 360 music service and will unveil details in the coming weeks.

A source tells Billboard.biz that Microsoft wants to have a platform-agnostic music service but says Xbox Music will initially be aimed at Xbox and Windows platforms. Rdio could potentially fill those gaps in short order. The service is currently available on PC, iOS, Android, BlackBerry and home audio devices Sonos and Roku.

In turn, being acquired by Microsoft could allow Rdio to more quickly reach more subscribers and expand into more markets. Rdio is believed to have in the low hundreds of thousands of subscribers -- far fewer than some of its peers. Rhapsody has more than 1 million -- in far fewer markets -- and Spotify reached four million subscribers in July.

Rdio launched in the U.S. in August 2010 and now operates in 14 countries.

Microsoft's alternative is to slowly build out Xbox Music while a slew of competitors push their multi-platform digital music services. Apple, Google and Amazon offer cloud-based music lockers that stream from a variety of devices. Sony's Music Unlimited subscription service works on numerous Sony and Android devices.

Microsoft faces stiff competition in the smartphone space, too. Virtually every operating system and hardware manufacturer has a digital music strategy of some sort.

Those who don't yet have a strategy are expected to figure one out. HTC, for example, has a 25% take in Beats Electronics, owner of the valuable Beats By Dr. Dre brand and owner of the Mog music subscription service. There are synergies for those assets.

The messy part would seem to be the brand. Not that the Rdio brand has really established itself in the U.S. and around the world, but the Microsoft brand does not carry much weight among music fans, either.

This could be a good opportunity to give Microsoft a new look and fresh face -- just as long as it's not called "Rdio for Xbox by Microsoft."

(Additional reporting by Alex Pham)

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