Analysis: Rhapsody Hooks Up With MTV, Verizon and Vodafone to Challenge iTunes

Authored by Jay Baage on August 21, 2007 - 7:54am.

Big news this morning – At a press conference that just finished in New York it was announced that Real Networks is hooking up with MTVN, Verizon and Vodafone to take on Apple’s iTunes in the legal digital music market. Finally, after Microsoft, so far, has failed to gain traction for its Zune music player and marketplace, we see some other competitors making a big joint move (Pictured left to right, Rob Glaser, chairman and CEO of RealNetworks, John Stratton, SVP of Verizon Communications and Van Toffler, president, MTV Networks' Music/Logo/Films Group).

MTV Networks' URGE music service is folded - MTV and Real are forming a new company, Rhapsody America, whose offering will be the exclusive digital music service for Real and for MTV Networks' music and pop culture brands in the United States.

On the mobile side, RealNetworks' Rhapsody service and Verizon Wireless' V CAST music service will merge into one united mobile platform for the integrated Rhapsody service. It is still somewhat unclear how Vodafone fits into the picture.

While the MTVN (Viacom) executives have realized that its URGE music service was not good enough and that, theoretically, it stands a better chance with taking the power and simplicity of Rhapsody and bringing it to the platform agnostic mass market together with two giant mobile phone operators, there are still many ifs and buts regarding the broader prospects of making money from selling and renting digital music.

The reality is that you are competing against free music (piracy) and while iTunes is a groundbreaking service, Apple is making its money from selling hardware, not 99 cents downloads.

Moreover, bloggers were quick to point out that even with the support of MTV and Verizon, Real's Rhapsody subscription and download service still faces the same issues are before:
a)    it's not given away for free, b) people don't own it, and c) it is too cumbersome to make this service portable.
The key to profitability is of course to invent a free, user-friendly on-demand ad-supported model, something which both iTunes and Rhapsody have yet to do.

Luckily, there is not a shortage of people willing to offer their opinion this morning on how this can be done.

Fred Wilson suggests this:

1) Offer a subscription plan that incorporates an eMusic style DRM free music download service. For those people who do want to continue to own music, Rhapsody should offer "sample and own' plan. For say, $20/month, you get unlimited listening plus 30 downloads a month. And Rhapsody will know what you are listening to and can recommend what those 30 downloads should be.

2) Get on more connected devices. Sonos with Rhapsody is the killer product. It takes Rhapsody off the computer and into the living room and gives you a wireless controller so you can change the music without getting up. But there are many connected devices out there and more coming every day. Get Rhapsody on all of them. Make deals with the devices manufacturers to incent them to bundle with Rhapsody. I'd give a year free as an incentive to bundle. Once you've had Rhapsody for free for a year, you won't be able to live without it.

3) Go mobile with a streaming service. I don't want a cheap Sansa device that is basically an inferior iPod. I don't want to have to synch a mobile device with Rhapsody to get my files on my mobile device. That's copying the iPod/iTunes experience with an inferior offering. Blow right past iTunes. Offer me the ability to stream to my mobile device like I do with my laptop and Sonos. I am listening to Rhapsody right now in the back of a car taking me to JFK. We are going 60 mph down the Southern State Parkway and the reception is excellent. Why can't I have a mobile device like an iPod that does that? That uses the iPod connectors so I can make it work in my car? Or better yet, just give it to me on my phone.

4) Build a social network around Rhapsody. Buy Yottamusic and incorporate all of its features into Rhapsody.com. Build an API that lets any connected device that is running Rhapsody (Sonos, Squeezebox, Phone, Mobile Music Player, etc) report back to Rhapsody what I am listening to and share that with my social network on Rhapsody.

J Herskowitz ads the following advice:

   1. First, the market needs Napster (or at least their customers) to be acquired by Rhapsody too. Then, the market confusion will start to clear a little (iTunes needs one strong competitor, not a bunch of tiny ones) - then they can easily position A vs. B in their marketing messaging.

   2. Offer DRM-free a la carte tracks (which they are going to do) - word is that they will be really high bit-rate (upwards of 256kbps) MP3s. Sell them for $1 each.

   3. Introduce an ad-supported streaming service - with an up-sell tier to ad-free listening.

   4. Partner with every "music 2.0" site out there and syndicate their free play web player - support *lots* of external communities, not just their own - cut affiliate relationships with them all.

Even if Real Networks together with its new partners do all of this with the new Rhapsodu service and manages to invent a model that works for all parties, there is nothing keeping Apple from sitting back, just letting them make all the first-mover mistakes, and then, when the time is right, copying the model and incorporating it into iTunes.

So, it is not an understatement that MTV/Real/Verizon/Vodafone is fighting an uphill battle here. However, it is an interesting initiative and something that I’m sure will be closely studied by the music biz going forwards.

Joakim Baage

What do you think? Take our poll: Can MTV+Real+Verizon Present a Threat to iTunes' Dominance of the Digital Music Market?