Preempting Spotify

Rhapsody announced yesterday that its new Rhapsody 2.0 iPhone app allows users to download their playlists to their phone and listen to them even when an Internet connection is not available. With this announcement, Rhapsody has now fulfilled the three tenets of true cloud-based music services that I put forth in a report last year. Those were: 1) availability across platforms -- Rhapsody is available on phones, set-top boxes, home audio, and, of course, computers; 2) availability across brands -- Rhapsody is available on the iPhone, Android phones, and multiple home audio brands; and 3) availability when the cloud is not available. Rhapsody's execution on all these tenets is a work in progress, but at a price of $10 a month, the service has now vastly improved its value proposition. Rhapsody and its competitors (MOG and Thumbplay) are on their way to providing consumers with new, compelling reasons to rent -- not own -- music. The question is, will it catch on?

We expect the number of subscribers in the US to double in the next few years. But that's still not a very significant number considering the small base it is starting from. Subscriptions are hard to commit to -- but once you are committed, switching away or off is hard to do as well. Therefore, there is a short window of opportunity for Rhapsody and others to lock in some of that growth for themselves before Spotify launches Stateside or Apple launches its own version, thus changing the competitive environment. But these new services could also end up energizing the market, and the rising tide may perhaps lift all boats.

But what Rhapsody really needs now is to get a service provider to subsidize the service across platforms.