Peter Kafka

Recent Posts by Peter Kafka

Why Rhapsody Is (Probably) Bigger Than Spotify — In the U.S.

Jon Irwin is not pals with Sean Parker. He doesn’t hold splashy press conferences. He hasn’t been on the cover of Forbes.

But for now, at least, he can claim a bragging right that Spotify’s Daniel Ek doesn’t have: The CEO of Rhapsody has more paying subscribers than any other digital music service in the U.S.

Probably, that is. We can get into the numbers in a minute. But at the very least, Irwin argues, his company ought to get a bit of the attention that Spotify does.

They’re both doing the same thing, after all — trying to get consumers to pony up $10 a month for an ad-free service that lets you listen to any music you want, on your iPhone or (just about) any other device.

The big difference between the two is that while Rhapsody offers users a free trial period to sample the service, Ek’s company will let you listen to music for free forever.

That offer comes with advertising, and some restrictions — you can only do it for a certain number of hours per month, and you can’t take it with you. But that free offer, in conjunction with a big push from Facebook, is the real reason that so many people have heard about Spotify recently. Free, legal music is a pretty compelling offer.

Why hasn’t Rhapsody gone that route? Irwin has a long answer for that, but the short one is that he doesn’t think Spotify’s freemium model can convert enough subscribers to cover the costs of the music it gives away. The Spotify camp argues otherwise, but we’re not going to get an authoritative answer for some time.

In the meantime, Irwin can take can comfort in the fact that he has more Americans paying for his service than Ek does.

He thinks. Irwin says he passed the one-million mark at the end of last year. And while Spotify hasn’t broken out its U.S. subscriber total, we can guess that it has less than that. At the end of November, it said that it had 2.5 million paying subscribers worldwide. That’s 900,000 more than the 1.6 million it said it had in June, and that growth hasn’t all come in the U.S., because Facebook has been promoting the service everywhere.

Now, back to the future. Spotify is likely to keep growing for a while, thanks to that Facebook firehose, as well as international expansion — my bet is that Ek opens shop in Germany fairly soon.

But Irwin thinks that both companies are going to end up needing help from partners with much bigger reach — cable guys like Comcast, or wireless giants like Verizon — if they’re going to get real scale.

He explains in this interview we conducted yesterday at the Consumer Electronics Show:


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— Gitesh Pandya of comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”