Business Matters: How Rhapsody Got to 1 Million Subscribers
Business Matters: How Rhapsody Got to 1 Million Subscribers
Rhapsody's Jon Irwin

A year ago today, Real Networks officially split off its Rhapsody music subscription service into a standalone company. Since then, the smaller, nimbler organization has added 100,000 net subscribers for a total of 750,000, with 26% of its traffic coming from smartphones outfitted with its mobile app.

But Rhapsody has a challenging year ahead of it. Big-name competitors like Apple and Google are prepping new cloud-based music services that may disrupt the traditional streaming model in which Rhapsody has operated for the last decade. High-profile competitor Spotify is eyeing an entry to the U.S. market. And Apple has called the entire mobile strategy into question with new rules pertaining to in-app subscriptions.

Rhapsody president Jon Irwin took a few minutes to speak with to discuss how he's navigating these issues and more. (In fact, the phone call took place as he was driving to visit Apple in Cupertino). He discussed the new products Rhapsody has planned to roll out this year, the results of a recent 60-day free trial period offered with partner MTV, and the personal sacrifices he's willing to make to reach 1 million subscribers. To what do you attribute your sub growth over the last year?
Jon Irwin: Number one, I give credit establishing a new culture and independent company where we could move and respond to customer needs on our own roadmap. That allowed us to pursue an aggressive mobile strategy. Portability coming to digital music in a real way via the power of these smartphones has been the primary driver of growth. Secondarily, offering a $10 price point for people to get into a portable product was a driver as well.

Can you break down usage between smartphone platforms?

Between Android and iOS, they're about level. Android has caught up with iOS in terms of overall usage. BlackBerry is significantly behind that. So it's roughly split 50/50.

Have you got any further clarity on Apple's new subscription rules?

I'm driving south on the 101 towards Cupertino as we speak. To be direct, no. We've talked to them and the partnership managers are looking for clarity and a way we can work forward on something that's a manageable revenue share percentage for taking advantage of their channel and their billing platform. They signaled they intend to differentiate between pure publishers and software services. We're going to seek clarification so we can continue to aggressively market through the iTunes store.

It's probably too early to talk conversion rates, but what kind of results did you see from the recent 60-day free trial program you ran with MTV that ended March 31?
That had very encouraging results. The user engagement, meaning the amount of music listened to on a percentage basis, is elevated from the 14-day trial. We figure the gross number of subscribers to come out of this is going to be very strong. It gives people a longer time to explore the product and curate their music w/in the context of the Rhapsody service, and develop a bond with it. There's been substantial adoption of it, which I think is more important than the aggregate number of apps that were downloaded.

So what's next?
We're going to implement three features I believe are very important. We'll elevate the importance and prominence of radio to offer a lean-back experience for those just entering the space. We'll have what we call a "sync and stream" product, so when someone comes to the Rhapsody service we're going to reconfigure the Rhapsody cloud for them. All the music they've curated in iTunes and purchased CDs that are currently on their desktop, we'll place into the cloud within the Rhapsody service. From an onboarding perspective, that's key. And the third prong is a much more engaging and prominent social feature.

Any thoughts on tablets like the iPad?
Right now the existing apps work on the tablet. So we're in the planning stages of looking at ways we can make better use of the better real estate and enhance the experience. What we've heard initially from some of our customers are two features. One is to listen to Rhapsody on the iPad while they're reading their blogs or articles. In which case the interface the iPad affords is less important than the ability to multitask. However, using the iPad as a discovery mechanism where we can promote the Rhapsody editorial and programming focus that we have in a more visible way will be a cornerstone of where we head on iPad development.

How does everything happening with Google, Apple and Spotify factor into your plans?

There's going to be a turning point, a Nexus moment, where cloud services become more understandable to the mass market. You're seeing it now. The Microsoft "To the Cloud" ads. So the knowledge the general public will have of cloud services and the benefits they have is going to increase. That's good for the overall business. Rhapsody's been in the cloud service business for 10 years now.

So when will you get to one million subs?
Oh boy. We're hopeful to make that announcement sooner than later. I have to shave my head when it happens. I told my employees I'd be bald. That's how I'll let you know. I'll send you a photo. We're in a great position with great resources to capitalize on an expanding market. We've actually increased our market share in the last year. When you look at our size compared to our competitors that haven't released numbers, they haven't gained any traction yet.