Unanswered questions at Rhapsody

Being a first-mover can be dangerous.

No music service is more aware of the perils of pioneering than Rhapsody, the subscription listening platform that has been operating since 2001. CEO Jon Irwin, in his RAIN Summit West 2013 keynote, remarked: “We’ve been around for over 11 years. Sometimes that’s a good thing; sometimes that’s a bad thing.”

Rhapsody’s market position seems to be an uneasy thing, at least, if you give credence to this week’s rumors of an executive shakeup underway. Nothing has been substantiated, but Rhapsody’s business realities, combined with whirlwind change in the internet listening landscape, make the rumors plausible.

If nothing else, putting a question mark over Jon Irwin’s bio reflects light on larger unanswered questions about Rhapsody’s service model and future.

Rhapsody was a farsighted startup in 2001. Launching with a small and esoteric music catalog, consisting entirely of classical recordings to start (largely provided by specialty label Naxos), the platform established major-label agreements within about six months. Along with early competitor eMusic, Rhapsody committed to the subscription path — there is no free listening and no ads. (Google’s All Access service is going down that path, too.)

Many observers believed that Rhapsody’s access-as-ownership model was the future, implying as it did that ownership of a product unit (CD or track) would be rendered unimportant by an always-on celestial jukebox of a vast recorded catalog. That scenario is closer to playing out now, but it took a long time (in internet years) for it to manifest. The iTunes Music Store launched in 2003, giving labels a way of leveraging the album/track paradigm in the online realm, while coaxing consumers into the digital age with a store model they could relate to. iTunes revolutionized music buying by keeping it familiar.

The mobile internet changed consumer demand more radically than Apple’s iPod MP3 player could service with its hard drives of bought and stored songs. Alongside the sea change of mobile, new services introduced free listening, supported by advertising and usability restrictions that most people were (and are) willing to tolerate. While Rhapsody continued to supply a feels-free access to a long tail of music, Spotify and its ilk furnished actually-free listening, discovery, playlisting, and social sharing.

If that didn’t pressure Rhapsody’s steadfast subscription model enough, the big sluggers are now coming to bat — the ecosystem giants Google, Microsoft, and Apple. These collossal tech/media brands engage in primary businesses (advertising, software, hardware) that can easily float loss-leading divisions that sell music. Apple’s music-specific ambitions are probably the most distinct, and certainly backed by a monumental history of shaping consumer habits, but all three companies (plus Amazon) own immense user bases whose casual exploration of built-in music services can take share from established indies like Rhapsody.

So, whether Jon Irwin remains Rhapsody’s leader or not, the unanswered questions remain the same: Can a subscription-only service provide compelling value against free-listening platforms? For that matter, can any streaming-music business hold its own against content costs?

Investor valuations can soar in certain cases, but nobody is turning a profit quarter after quarter. (Rhapsody’s most recent year-over-year quarter was down eight percent.)

The most visionary music service is rewarded for its far-sightedness by owning the longest track record of profit futility. Hundreds of thousands of dedicated users hope Rhapsody can remain buoyantly afloat in increasingly rough waters.