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

May 15, 2014 at 12:01 AM

Possible Apple-Beats deal cheered by Rhapsody

This could be a big year for Seattle streaming music pioneer Rhapsody, now that Apple’s drawing attention to the category with a possible $3.2 billion acquisition of a rival service.

All for just $10 per month

All for just $10 per month

The category was already heating up before the Financial Times last week broke news of Apple’s interest in Beats, which started out building high-end headphones and now has a relatively small streaming music service.

Apple’s entry would further popularize the category and perhaps lead to more acquisitions, if other big companies decide to add streaming services of their own.

“I’m clapping from the sidelines — I think it’s fabulous,” said Ethan Rudin, a former Wall Street and Starbucks dealmaker who became Rhapsody’s chief financial officer last fall.

Streaming services that charge $10 to $15 per month for unlimited access to online music catalogs are a bright spot for the music industry, offsetting declines in digital downloads and the steeper, ongoing decline of CD sales.

The number of subscribers to these services nearly doubled last year, growing 81 percent to 6.1 million in the U.S., while subscription sales grew to $628.1 million, according to the Recording Industry Association of America.

Beats had only 110,000 subscribers as of March 31, according to a document leaked on May 10.

Rhapsody has about 1.7 million subscribers, up 62 percent over the previous year, but it continues to lose money, including $1.6 million lost on sales of $42 million in the first quarter. Its earnings are reported by RealNetworks, which was the majority owner of Rhapsody from 2007 through 2010 and continues to hold a 47 percent stake.

Lobby of Rhapsody's new office

Lobby of Rhapsody’s new office

More changes are underway. The company has been reorganizing under new managers, expanding its reach overseas and mulling an overhaul of its branding in the U.S.

There’s a chance Rhapsody could change its name to Napster — a brand it bought from Best Buy in 2011 and now uses for its service overseas. Rhapsody might even consider an entirely new name to update its U.S. branding, which isn’t as fresh as that of newcomers such as Spotify, Beats and Deezer.

A turning point came last year after Rhapsody severed operations from RealNetworks and took a big investment from Columbus Nova Technology Partners.

The company simultaneously cut 15 percent of its employees and let go its president, Jon Irwin. He wasn’t replaced; the company is now led by a committee of senior managers.

Rhapsody has since increased employment again, but mostly overseas, where it has partnerships with wireless carriers. Altogether it now has around 240 employees, including 126 at its Seattle headquarters.

Operationally, it picked up the pace, renewed its focus on mobile devices and upgraded its apps, said Chief Product Officer Paul Springer, who joined two years ago after working on’s Kindle team.

Although the company established the category when its service began back in 2001, it needed to move faster to keep up with the category’s second and third generations, Springer said.

The overhaul is embodied by new offices that Rhapsody moved into in late March. It moved from offices near the downtown retail core to a floor midway up the Columbia Center, where its groovy lobby and music stage loaded with guitars and a drum kit stand out from all the law offices.

If Rhapsody starts making headphones and cozies up to rap stars, who knows? It could be worth at least $1 billion.



Comments | Topics: Apple, beats, Digital media


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