Tag Archives: Subscription business model

Rhapsody Buys, Extinguishes Napster

Rhapsody will acquire Napster from Best Buy and perhaps that will – once and for all – kill off the most notorious company name in online music. I for one am glad to see it go. Napster was launched in 1999 by Shawn Fanning and Sean Parker to promote illegal online sharing of music in the form of mp3’s. It was shut down in 2001, declared bankruptcy in 2002, was reborn as a commercial venture in 2003 and purchased by Best Buy in 2008. I always thought that was one of the worst decisions to buy a brand that a company ever made.

Now Rhapsody, in an effort to stay alive and compete with newer on-demand services like Spotify, will migrate Napster subscribers over to the Rhapsody platform where they will enjoy subscription based on-demand streaming, along with the ability to build playlists for offline listening, a feature that Rhapsody introduced earlier this year. Reportedly, Napster subscribers who were paying a cheaper, $5 a month fee will have to upgrade to Rhapsody’s $10 a month subscriber fee.

Rhapsody has 800,000 subscribers, about 15 million songs, and has been in business for about ten years. While they’re not huge, they are the largest on-demand subscription service. Best Buy paid $122 million for Napster in 2008 and will get a minority stake in Rhapsody in the transaction.

Napster openly and defiantly promoted illegal music sharing and caused a lot of animosity between labels and services, not to mention contributing to the “music is free on the Internet” mentality that is still pervasive today. There’s a real satisfaction in seeing one of the oldest names in online music finally put the brazen bull that caused so much damage out to pasture..

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Taking Streaming Siriusly

Things aren’t looking so bad for Sirius XM these days. They finished 2010 with more than 20 million subscribers, and renewed their contract with Howard Stern, and managed to report profits for most of last year. And while the crisis isn’t over – they still have plenty of debt to worry about – the skies seem to be brightening.

In part, they can thank Pandora for that. Pandora, who filed papers last week as a first step in their move to go public, is raising awareness of and interest in new radio technologies. And while Sirius XM isn’t really an Internet radio company, they have a substantial presence online, and could certainly head in that direction.

Actually, I’ve begun to wonder if they haven’t already – they just announced a new deal that puts them on Sonos Internet radio devices along with Pandora and others. They’re working on a new platform for Android, they’re already on iPhone. They are already in the Internet radio game – and getting an extra $2.99 a month for it from their subscribers.

Pandora’s impressed a bunch of folks with their stats – 80 million registered users is an impressive number. But we know from the filing that less than 10% of them are paying customers – and while Pandora is watching ad dollars flow in, they have a big job in front of them in turning all those listeners into advertising revenue. Pandora’s subscribers listen to ad-free music streams.

Meanwhile, Sirius XM has reported that they have more than 20 million subscribers as of the end of 2010. Who are both paying to listen AND listening to commercials. Auto sales are on the upswing, and Sirius XM gains subs from that as well.

Analysts are liking Sirius XM, and I have to say their business model is starting to look somewhat sound…

Last.fm Lockdown

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Image via CrunchBase

Last week we had a couple of good reasons to take a second look at subscription models for streaming music business. First, Last.fm announced that the radio service built into Last.fm mobile apps and on home entertainment devices will become an ad-free, subscriber-only feature on February 15th. It’s not practical, they explained on their blog, to deliver an ad-supported version of their streams on mobile and other connected devices, so they’ll continue to offer an ad supported free version from their website, accessible through your computer, but if you want to listen on other devices you’ll have to pay a monthly subscription fee of $3 per month – the cost of a “fancy coffee.”

Last is not the first (get it?) service to head in this direction – many other services offer ad-free versions of their sites for a small subscription fee. Pandora One, Pandora‘s ad-free version, costs $3 a month as well – although they do offer a free version that is available with mobile devices. It’s working out okay for them – as we saw in Pandora’s recent SEC filing, they have managed to convert a small percentage of their large user base to paying customers, and generated 13.6% of their revenues in the first 3 quarters of last year from subscriptions.

Other services are working the subscription model as well – MOG, rdio, and Rhapsody, who offers unlimited streaming for $10 a month along with the ability to transfer playlists to a device for offline listening.

The Pew Internet and American Life Project reports that 33% of Internet users said they had paid for digital music online – which presumably includes downloads as well as access to premium streamed content. Digital music topped the list of items consumers were most likely to pay for.

Streaming music services have struggled to develop successful business models. CBSRadio, which owns Last.fm, no doubt decided that profitability or the pursuit of that is important enough to implement some changes that will no doubt impact the size of their audience. Can they leverage their brand and audience into a decent size subscriber base? Some early indicators say they just may be able to.

How Slacker Gets Smartphone Users to Buy Subscriptions

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Image via CrunchBase

Slacker has found a pretty nice formula for growing its subscription model via relationships with the cell phone carriers. Various US based carriers are selling smartphones with Slacker’s app preloaded on the devices which makes it easier for Slacker to get people to sample their service. What’s more significant is that Slacker’s also managing to convert those taste testers to actual paying customers, thanks to deals with the US carriers that allows them to direct-bill for Slacker’s subscription.

Slacker’s Jonathon Sasse recently told DMW that they’ve seen some nice growth in subscriptions in the past six months thanks to these direct bill deals with mobile carriers. Subscriber numbers are still low – about 250,000 people are paying a monthly fee for Slacker’s premium service, which pales in comparison to their overall listener number of 20 million (this must be a registered listener number). Sasse says half of that number is mobile listening.

Crunching that data next to some that we already know: Slacker showed up on its first AndoMedia ranker last month with 13,321 average active sessions, which did not include mobile listening. If mobile listening doubles that number they’ll be at 27 – 30,000 average active sessions per month. By comparison, Pandora, who last released a registered user number in July when they announced that they had 60 million, has about 366,000 average active sessions during the week. Which kind of leaves me scratching my head at Slacker’s 20 million number…

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