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Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

June 27, 2011 at 9:48 AM

Rhapsody needs to turn up the volume

There’s a new game you can play if you’re following the recent hype around online music services.

It’s like “Where’s Waldo?” But instead of looking for a little guy hidden in a complicated picture, you look for a proud company that’s vanished from the industry it helped create.

I call this game “Where’s Rhapsody?”

Remember Rhapsody? It’s a Seattle-based subscription music business that started a decade ago, was acquired by RealNetworks and spun off last year as a stand-alone company.

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Rhapsody has 750,000 subscribers paying $10 per month for unlimited access to its online library of about 12 million songs. It streams music to devices, PCs or Web-connected audio gear. It has 150 employees and about $130 million in sales..

I’m a fan. For that $10, I get unlimited access to a vast collection that plays with no ads or limits on how many times I can play a particular song. For $5 more per month, I can download songs to a smartphone (and hear them played through tiny speakers until the battery ran out faster than usual … ).

It’s like Netflix for music, but with a far better selection — and new releases.

You’d think Rhapsody would be a service against which newcomers are measured.

But in recent months, as new music ventures turned the hype volume up to 11, Rhapsody seems to have pressed a giant “mute” button.

Since May, Apple, Google, Amazon.com and Best Buy unveiled new “cloud” music services without a peep from Rhapsody.

Midsize companies in the business are soaring. Online radio service Pandora went public two weeks ago; its stock didn’t fare well, but the money-losing business still ended up with a $2.5 billion market capitalization. British subscription music service Spotify simultaneously raised $100 million, arming it for a U.S. debut and direct challenge to Rhapsody later this summer.

I caught up with Rhapsody President Jon Irwin to find out what’s been going on. (I took the picture below last year at Rhapsody’s new Seattle office.)

“We’re staying the course,” he said. “These new entrants are simply validating the space — they’re moving in a direction where we’ve already been and our products are already going.”

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Rhapsody has been working to fully sever itself from RealNetworks, building capabilities such as its own billing system. That was completed a few months ago.

At the same time, Rhapsody has been redesigning its website and building new features. The redesign’s been in beta testing and went live last week.

In a nod to Pandora, there’s a “Radio” link that’s basically a different name for the curated collections of music that had been called Rhapsody “channels.”

Social networking features are coming in late July, enabling users to share and “Like” songs, Irwin said. Spotify now has an edge here. Its users can share playlists on Facebook (although they’re not really giving friends music — the friends have to be using Spotify, which is where the playback happens).

Also in the works is a “sync” feature that will scan users’ offline music collection and add those songs to their online Rhapsody collection.

Synchronizing online and offline music collections is a big selling point of “cloud lockers” that Apple, Amazon and Google are rolling out. But these are very different offerings than Rhapsody’s “all you can eat” service. The cloud lockers are mostly designed to store and stream music that you’ve bought, or will buy from the cloud companies.

Rhapsody lost $7 million on sales of $32.5 million in the quarter ending March 31. Irwin said it’s in “fantastic shape” and accumulating cash that could eventually be used for acquisitions or international expansion.

“We are break even and moving toward profitability the back half of this year,” he said.

Irwin believes that all the new entrants will help Rhapsody, because people will get more accustomed to subscription music services in general. I think he’s right, that people are getting used to paying $10 a month for services such as Netflix, which provide convenient and legal access to premium content.

But I’ll bet people will be confused by the different options, and they’re not likely to subscribe to multiple music services. If they decide to start paying a monthly fee for online music, they’ll decide among well-financed newcomers bombarding them with promotions, tech giants with household names and, perhaps, Rhapsody.

Irwin is undaunted. Rhapsody has a critical mass while other players in the U.S. are “nowhere near the scale they need to be profitable, and it’s a very expensive proposition to close the gap,” he said.

Rhapsody also is making deals with wireless companies to offer and bill for its service. Irwin said that’s exposing Rhapsody to “not hundreds of thousands, but millions, of customers.”

“The best way for me to position Rhapsody for additional value creation is to continue to deliver a great service and innovate on the product side,” he said.

That’s fine, but it may be time to start watching for Rhapsody to be acquired by a larger company.

Comments | Topics: cloud, Digital media, digital music

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