Business Matters: How Rhapsody Got to 1 Million Subscribers
Business Matters: How Rhapsody Got to 1 Million Subscribers

The Echo Nest today announced on its blog a partnership with Rhapsody in which the two companies will create APIs to make it easier than ever for developers to build music apps. The news follows a story (below) published in this week's Billboard on Rhapsody adopting a music app strategy that focuses on increasing its paid subscribers base while getting out of the song download business. The veteran music streaming company's strategy helps explain and give context to today's Echo Nest news.

Rhapsody, a pioneer of on-demand streaming music services, is reinventing itself in its perpetual quest to find a key to unlock consumer wallets. Moving forward, Rhapsody will drop song download sales and advertising to fully focus on getting more people to buy into its core subscription business.

The Seattle company is releasing more than a dozen stand-alone mobile apps, each offering a music-related feature like song identification, concert location or social sharing. The idea is to get people engaged with the free apps, then try to upsell them to the premium all-you-can-listen service.


Rhapsody, which launched in 1999 as, is the longest-running digital music service, but now finds itself losing mind share to newer players, in particular Spotify, which in a little more than a year amassed 1 million paying subscribers. Rhapsody said at the end of 2011 that it had slightly more than 1 million users.

Part of Spotify's appeal has been its "freemium" model, which gives easy access to a large library of on-demand music for a limited amount of time without ads in a bid to convert new users to paying a monthly fee. Rhapsody, which also has a large library of on-demand music, also hopes to convert trials into subscriptions.

Rhapsody's new strategy is led by Paul J. Springer, who was hired in May as senior VP of product. Springer, who had worked on Amazon's Kindle and digital products businesses, brought a more ruthless focus to the table.

"We're a music company. Our customers are listeners," Springer says. "But we had banner ads on our website. We had sponsored playlists and other ad-supported playback options. But I have yet to hear people tell me that what they really want is another ad. We're not going to give them another ad. We're going to focus on giving them what they want."

Rhapsody is also phasing out its download business in the next few months.

"It's not core to our model," Springer says. "And it wasn't what our customers were asking for."

Rhapsody president Jon Irwin declines to say how much money ads, sponsorships and download sales have generated for the company, so it's unclear whether Rhapsody is giving up significant revenue to pursue its new strategy to grow its subscriber base. The company's customers pay between $9.99 and $14.99 per month for access to a catalog of 16 million tracks.

It's not just Rhapsody that's struggling with the challenge of getting listeners to pony up money for subscriptions-the market is still striving to go fully mainstream. But executives at the digital music firms and at major music companies see subscription services playing a bigger role in music consumption in the near future.

"About 20% of the Internet population have heard of Rhapsody," NPD analyst Russ Crupnick says, citing a survey that his market research firm conducted this year. "The challenge is that only 2% of the people who are aware of the service are actually using it. Getting people to plunk down money is a challenge that all of these services continue to struggle with."

Viacom Networks and Real Networks each own 47% of Rhapsody. The remaining minority stake is split by a variety of investors including major labels, which also have minority stakes in Spotify.

Irwin and Springer believe the biggest barrier is in getting people to try the service. Once they take a sip, the thinking goes, they won't hesitate to pay for the bottle.

By spooling out multiple mobile apps in the next few months, Rhapsody will attempt to hook in new users who may download the apps for other reasons-find local concerts, identify a song or see a music "heat map" of what tracks or artists are hot in various parts of the country.

"We will demonstrate value well in advance of asking them to pay for Rhapsody," Irwin says. "We'll let you hear the whole song, try the free trial service and reduce the friction to get them onboard." ••••

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