Rhapsody President: Spotify Hasn't Won

"Spotify may be the leading service globally in terms of paid subscribers, but not in the U.S.--that title still goes to us," says Rhapsody president Jon Irwin.

Last week, Spotify revealed that it had grown to 15 million active users of its ad-supported music service. That's great news for cofounder Daniel Ek, but for Spotify's competitors in the space? Not so much.

Rhapsody declined to provide new usership figures, again saying it had passed one million subscribers, a figure which the ten-year-old company has not updated since December 2011. Rdio too said it was not yet ready to release user numbers. And we've barely heard a peep from MOG since it sold for a reportedly small sum after failing to scale. Meanwhile, Spotify just hit 4 million paid subscribers and is reportedly being valued at $4 billion. Is it safe to assume Spotify has won the war for streaming music listeners?

"No, absolutely not."

That's the message Rhapsody president Jon Irwin stressed to me during our conversation earlier this week--and it's no surprise that he (and others) want to argue why, as the company phrased it to me, a winner has not yet been named. Rhapsody and Spotify have varying music catalogues, approaches to social, and even business models. (Spotify offers free, ad-supported music on PCs and charges a subscription rate for premium access on mobile devices; Rhapsody, on the other hand, only provides subscription plans, though it does offer a free trial.) But despite such differentiation, Spotify has--thanks to its growing user base, press coverage, Facebook integration, and celebrity and brand endorsements--clearly taken a commanding lead, at least in terms of public perception. Even President Obama has a Spotify account, for example.

Now, it's Irwin's plan to turn that perception around. "[Spotify] may be the leading service globally in terms of paid subscribers, but not in the US--that title still goes to us," he says. (A spokesperson for Spotify would only say that it does not split user numbers up by country.)

Irwin isn't too surprised by Spotify's growth: Outside the glowing press it receives, he believes Spotify's freemium business model has attracted listeners. "They're just giving it away, like, 'Oh, I don't have to pay for it,'" he says. "It promotes the sense to the mass market that music is free. It devalues music a bit."

Irwin is skeptical about whether Spotify will be able to covert free users to premium subscribers. Currently, Spotify offers unlimited playback for its free, ad-supported service in the US. However, in certain European countries, Spotify limits the amount of music that can be streamed after a number of months, such as with a five-play limit per track or an hourly streaming allocation. Irwin says that once these restrictions went into place in Europe, "it trumped [Spotify's] active user base considerably." (Spotify declined to comment on this assertion.)

"As soon as you can't listen to your favorite Adele song more than five times, you're either going to leave or you're going to pay," he says. "They're playing a game. They're sucking people in and using various points of friction to get them to pay: advertising, restricting plays. How many times can you do that to a given market?"

Spotify has not yet indicated whether such limitations will come to the US market, though perhaps the recently announced free mobile radio for Spotify indicates that restrictions are not likely to come too soon. But Irwin believes it's inevitable that similar restrictions would be put in place, and doubts the freemium model is sustainable. "It's an extremely expensive model" he says. "How long they can fund their losses remains to be seen."

Graham James, head of communications for Spotify in the US, disagreed with Irwin's positions. "We would never comment on our financials, but we are extremely confident of our freemium business model, which sees revenues from both ad-supported listening to free music, and also two subscription tiers, with a conversion rate of well over 20% free to paid," he wrote by email. "We, our investors, and our content providers have no such concerns."

James also disagrees with Irwin's contention that Spotify's freemium model devalued music. "On the contrary, Spotify was set up to combat piracy, and in fact many of our users were, prior to Spotify, consuming music illegally," he said. "We're monetizing a demographic previously not spending a cent on music."

Irwin, unsurprisingly, believes Rhapsody's model of getting users to subscribe from the start is better, "as opposed to, 'I listened for six months on a free service, and now to keep it, I'm going to have to convert," he says. "I question whether that's really the path people will take. If someone comes across a service on Facebook, they'll get the impression they can just listen to music for free. The person who is doing that may not even have a credit card."

Spotify, also unsurprisingly, disagrees with this assertion too.

"We know that the more social a user is and the more engaged they are, the more likely they are to convert," James says, adding again, "We have a conversion rate from free to paid of well over 20%, which is remarkable for a freemium business."

Can't we all just get along?

[Image: Flickr user slagheap]

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2 Comments

  • Dude

    IMO the Sptotify catalogue is more of the top 40 whereas rhapsody might have more of those bands that washed away with the changing times over the past 20 years.... and they're both lacking the beatles... at the EOD, you need to buy you're library or convert all your albums to digital... everything else is a crutch that won't hold you up forever