Rhapsody Splits from RealNetworks: Music Download Rival to iTunes

by Jordon Chiarelli | April 7, 2010 at 10:46 am

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At the end of March, Rhapsody will separate from RealNetworks and become its own music subscription service.

This means consumers may finally be given a legitimate alternative to iTunes. RealNetworks, however, will still own 50 % of the stock, but user subscriptions have been cut by a third from $14.99 month to $10 US.

Rhapsody vs. iTunes, Pandora, YouTube

The company is the leader in the subscription space, but according to the NDP Group, only 3 % of Internet users subscribe to such services. Some 19 % download from services such as iTunes, while 40 % just use YouTube and other video services as their music players. Also, services like Pandora, which provides customers free streaming channels built around favoured artists, have become a popular alternative.

Rhapsody will release an iPhone app which should allow them to compete more with Apple and dig themselves out of a financial hole.

Rhapsody has been losing customers -- perhaps as much as 18 percent of its subscriber base -- since the beginning of 2009, and Real posted $10 million in losses for its music business, including Rhapsody, last year, said Pietro Macchiarella, a research analysis with Parks Associates.

Revenue Projections for Rhapsody

With an $18 million cash infusion from Real and a commitment from Viacom for $33 million in advertising, Rhapsody has the resources to survive on its own for the time being, at least, Macchiarella noted.

It is estimated that Rhapsody should in turn, make annual revenue of around $80 million. If it was to team up with Google and their Android service, Rhapsody could have a strong chance of long term survival in an already shaky music industry.