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Brier Dudley's blog

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

September 16, 2013 at 3:03 PM

Rhapsody restructures, laying off 15 percent

Seattle-based Rhapsody is going through a big transformation today, taking on a strategic investor and cutting 15 percent of its workers.

The streaming-music pioneer has faced intense competition from Spotify and other better-funded rivals since spinning out of RealNetworks in 2010. Although Rhapsody pioneered the model of paying a flat monthly fee for unlimited access to a huge online music library, it has been largely overshadowed by newer offerings in the space.

Today, the company announced that Columbus Nova Technology Partners “has become a significant shareholder in the company” and installed two new board members.

Simultaneously, the board “has decided to rebalance and restructure U.S. operations and add resources to enable the company to accelerate its efforts in Europe and emerging markets.”

About 15 percent of Rhapsody’s employees will be cut and its president, Jon Irwin, is stepping down. Rhapsody employed about 150 people the last time I interviewed Irwin, in 2011.

Rhapsody has been unable to find profitability and sales have fallen over the last year. The company lost $9.1 million on sales of $68.4 million in the first six months of this year, compared to a loss of $5.6 million on sales of $72.9 million during the same period last year.

RealNetworks kept 47 percent of Rhapsody after the spinoff and continued to provide support services during the transition, though those services are ending this year. Real valued its Rhapsody stake at $15.3 million as of June 30.

Rhapsody’s restructuring comes the same day as digital music giant Pandora disclosed that it’s raising around $230 million through a stock sale. Pandora said it could use some of the capital for acquisitions but it doesn’t have any deals in the works yet.

Perhaps Pandora will end up acquiring Rhapsody. Pandora could use a premium, jukebox-type service to offer as an upgrade to the radio-style service it now offers. This would also give Pandora a fuller range of offerings on par with the service menus of Spotify, Xbox Music and other online music services.

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