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Online music: Rhapsody reaches 1 million subscribers, finally

December 22, 2011 |  6:01 am

RhapsodyRhapsody, the longest-running subscription-music service, announced Thursday that it had finally crossed the 1 million subscriber threshold. Before you cue the cork-popping, bear in mind that Rhapsody launched almost exactly 10 years ago, so its growth isn't setting land-speed records. And three years ago, Rhapsody and rival Napster each reported having about 750,000 subscribers. The two companies are now combined, thanks to Rhapsody's purchase of the fast-declining Napster in October, but the total is far less than the sum of their erstwhile parts.

So the announcement doesn't exactly herald the dawn of a new era for subscription music services in general or Rhapsody in particular. The total number of people who pay for on-demand music services online is still dwarfed by the more than 21 million who subscribe to Sirius XM. And in a country of more than 110 million households, 1 million isn't mass market.

Nevertheless, Rhapsody President Jon Irwin insists that the new total is a real milestone. Although online music services have notched higher subscriber counts before, they were inflated by the inclusion of customers who'd signed up only for low-cost premium radio services. More important, Irwin noted that the way subscribers use Rhapsody has crossed a significant threshold as well. For the first time, most of that usage is not on a personal computer. Instead, more than half of the playback is on mobile phones, stereos, TV set-tops and other consumer electronics, with smartphones accounting for 40%.

Irwin said Rhapsody started focusing on smartphone users in 2009, and that focus paid very real dividends this year. The company was losing subscribers in the late 2000s because, like Napster and other competitors, it was charging too much for mobile access, Irwin said. The turnaround came after it helped persuade the labels to accept less for the rights to play songs on portable devices, enabling it to drop its monthly charge from $15 to $10.

Another factor for Rhapsody has been the partnerships it has struck with other service providers. It has long teamed with Verizon Wireless to offer Rhapsody to subscribers as a $10-a-month add-on. This year it went a step further with Metro PCS, which bundled Rhapsody into a $60-a-month unlimited data plan. That sort of bundling is the Holy Grail for subscription services.

A third factor in Rhapsody's recent growth was the Napster acquisition, although Irwin declined to say how many subscribers converted to Rhapsody after it extinguished the Napster brand this month. That growth may be good for Rhapsody, but it doesn't indicate any momentum for music services in general.

Irwin predicted that the next subscriber milestones "are going to come much faster" for Rhapsody. The competition is certainly stiffer. Apple, Amazon and Google rolled out free or low-cost services this year that let people store copies of their MP3 collections online, which they can play from any Internet-connected device or compatible mobile phone. For people who don't have a constant need for new songs, those options are pretty compelling.

For those who do want to hear lots of new music, Spotify has ushered in a much more generous form of "freemium" music service, offering a large amount of on-demand music for free as a way to attract people to its paid services. Spotify's CEO said recently that it had 2.5 million subscribers worldwide, most of them in Europe. The company's numbers could jump next month, when its initial U.S. customers  reach the end of their allotment of unlimited free tracks and start bumping up against monthly caps.

Irwin remains skeptical about free advertiser-supported tiers as a way to acquire paid subscribers. The ad-supported model is a hard one to make work economically, he said, given how much the labels demand for the right to stream their songs on demand. He also wonders whether freemium services attract "music transients," people who switch from service to service as they exhaust their free trials. But he also said Rhapsody could switch to a freemium model in a heartbeat if a competitor demonstrates that it works financially. Whether it's a free tier or just a longer free trial, Irwin said, "it all goes to the same end: to show people the value of a subscription and get them to pay."

There's the rub. Compared with other forms of music consumption, not many people see the value in paying a monthly fee for access to a large music collection, as opposed to paying once for tracks that can be kept permanently. Irwin acknowledges that the Rhapsody model isn't for everybody, but he argues that it will become a mass-market way to consume music. Given that Rhapsody has "almost doubled" the number of subscribers since it was spun off from RealNetworks and Viacom in early 2010, Irwin said, and given the wealth of consumer-electronics devices Rhapsody is now available on, the service is "getting to the point where it can be mainstream."

Rhapsody is privately held, and Irwin declined to say whether it's profitable. "With a million-plus subscribers ... I can cover my operating costs," he said, adding that the company may still need to plow cash back into attracting new partners, expanding internationally and improving its service. "If I want to be profitable, yeah, I can be profitable," he said. "I'm not going to be driven by short-term financial considerations."

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-- Jon Healey

Healey writes editorials for The Times' Opinion Manufacturing Division. Follow him at @jcahealey.

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