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Spotify blazes the free music subscription trail -- again

July 26, 2011 |  6:31 am

Spotify blazes the freemium trail -- again

Spotify's arrival in the U.S. has more than a few reviewers frothing at the mouth. As The Times' Randall Roberts declared, "A notion barely fathomable a decade ago — unlimited access to a huge chunk of the world’s recorded music library — has become reality."

Never mind that a long roster of companies, including some of the Internet's most powerful players, have offered unlimited access to a huge chunk of the world's digital music library since 2001. Spotify is different: It's free! Who could imagine such a delight?

As it turns out, RealNetworks did six years ago, when it rolled out Rhapsody 25. In April 2005, Real started offering a free, advertiser-supported version of its Rhapsody subscription service. Users could play 25 songs per month on demand at no charge for as long as they pleased. They also had free access to 25 of Rhapsody's online radio stations, and could share the playlists they made with friends.

Lala.com tried a variation on this theme in 2007, offering people the ability to play each of the millions of songs in its online jukebox one time for free. The point was to persuade people to buy the digital songs and albums they listened to and liked.

But Rhapsody 25 and Lala's free streams weren't viable business models by themselves. Instead, they were just another attempt to entice people to sign up for something that wasn't free. In other words, they were another type of free trial. Instead of giving users unlimited access to Rhapsody's online jukebox for a few weeks, Real gave them limited access for as long as they desired. (Real spun off Rhapsody last year.)

That "freemium" approach is Spotify's model too ...

... but with much higher limits. New users can play as many songs as they like for six months; after that, they'll have to settle for 10 hours of free streaming. (Spotify doesn't make these limits apparent on its site, and new users can go through the entire sign-up process without seeing any mention of them.) To avoid the limits, they have to sign up for a paid tier that costs $5 or $10 a month.

Significantly, Spotify hasn't proven that it can make the free tier work by itself either. So far, sources at the labels say, its only profitable tiers are the ones people pay for.

So why did it take six years for a company to try the freemium route again? And why was Rhapsody's version so hobbled in comparison to Spotify's?

The music industry and consumer electronics have changed considerably since 2005. The major record companies once were extremely resistant to the idea of offering music on demand for free, fearing it would reduce how much the public would be willing to pay for CDs or MP3s. They're not so reticent now, provided that the service can generate an acceptable amount of revenue per user from advertisers.

Rhapsody President Jon Irwin also noted that subscription services used to depend on digitally locked files that wouldn't play on iPods, the dominant music player of the MP3 era. Now, the services work on all the most popular smartphones, as well as many connected TV sets and living room music players. For $10 a month, users can not only stream songs to a smartphone, they can store hundreds of tracks on their phones and play them when they're offline. They're still wrapped in electronic locks, but those locks are invisible to users (until they try to do something they're not allowed to do, such as make copies of the songs they downloaded onto their phones).

A third factor is social networking technology. Signing up for a subscription music service in 2005 seemed like a lonely experience; even on Yahoo, which incorporated its instant messaging platform into its version, it was hard to find friends who also were subscribers. By contrast, most of the services today make it far easier to join a crowd of other users. That's particularly true on Spotify, whose integration with Facebook immediately brings one's friends to the forefront.

Nevertheless, these services face the same basic challenge today as they did when Rhapsody launched in the first wave of subscription services in 2001. Although the offer sounds irresistible -- the ability to listen to millions of songs an unlimited number of times each month for less than the price of a CD -- Rhapsody and its rivals have struggled to persuade consumers to pay a monthly fee for tracks they could not keep. Music fans are accustomed to amassing personal collections that help to define them, not relying on a library that's stored online.

Nor has anyone demonstrated yet how to make money by providing on-demand music for free, unless the songs come in the form of music videos (a la Vevo and YouTube). And yet the freemium model is almost certain to spread, if for no other reason than to compete head to head with Spotify.

Irwin said Rhapsody feels the pressure to adapt to Spotify, not necessarily to copy it. The company's focus is to provide the "longest possible" and most feature-rich free trial. That means giving free users a taste of the portable Rhapsody (that is, the $10-a-month version), something Spotify doesn't yet offer in its free tier.

MOG may be beefing up its free trial too. "We’re working towards a revised model that provides potential new subscribers with a great taste of the service before they buy in the coming months," MOG Chief Executive David Hyman said cryptically via email.

Just how far Rhapsody, MOG and their ilk can go with free music will depend on the major record companies, whose license deals control virtually every aspect of a subscription service. In 2005, the answer was "not very far." Happily for consumers, the answer is much different today.

RELATED:

Spotify's new free service: Some first impressions

Spotify live in U.S. -- a vision realized for Napster's Sean Parker

Spotify launches (at last) in the U.S.

-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division.

Image: Screen shot of Spotify. Credit: Spotify

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