Some Thoughts on Rhapsody, iTunes, and the Future of Digital Music
It can’t hurt for Rhapsody to offer an iPhone app. However, they are going to have to compete with rampant iTunes, Pandora, and rampant piracy. While Pandora has a paid option, their free option satisfies many of the needs mobile users have for music. If RealNetworks offers a similar “free” option, it could provide a natural up-sell path to a paid subscription. Further, having such a free version, combined with MP3 music download micro-purchases, could boost the sales of both their subscription services and their MP3 sales. That would be goodness.
As I see it, subscription services for music, while viable, is going to be a relatively small niche of the music business. Users are pursuing music across multiple devices, and the burden to carry DRM [digital rights management] along with the music creates adoption hurdles that limit the size of the total addressable market.
If you look at Rhapsody subscription growth, it is largely driven by inorganic customer acquisition. The integration of Yahoo! Music Unlimited customers and Verizon Wireless probably accounted for all the growth, possibly offsetting declines that would have otherwise occurred. I think this is a mixed signal. On the one hand, at best there has been little to no growth in the business in the prior six months. On the other, adding new modes of consumption, like Verizon Wireless mobile devices, has resulted in some growth. Though they did not split-out the latter in their last quarterly report, I suspect that most of the growth in the six month period ending on June 30th was probably the result of the Yahoo! Music Unlimited integration.