For Mobile Music-As-a-Service, How Soon Is Now?

rhapsody Rhapsody, the music subscription service, says its free iPhone application has been downloaded more than 330,000 times since its launch Sept. 9, making it the No. 2 music app in the iTunes store. But while that’s an enthusiastic display of interest in a fairly moribund music rental model service (especially given that Rhapsody has 746,000 paying subscribers), broadly speaking, most users are still experimenting with mobile streaming rather than buying subscriptions.

Indeed, just 7,000 people — or 1 percent — of Rhapsody subscribers who pay a flat monthly fee of $13-$15 for desktop streaming are also accessing the service through their iPhones each day. If consumers aren’t terribly keen on desktop-based all-you-can-eat subscriptions, are they finally ready to pay a monthly fee for ubiquitous access to a massive library of music?

The addition of on-demand mobile streams via smartphone apps represents a huge shot in the arm for Rhapsody and longtime rival Napster, which is planning but has yet to deliver such an app. Subscribers have long been able to take songs with them on portable devices, but access to songs over-the-air is a new wrinkle that’s expected to spur interest in such services. A mobile component is also the key driver of Spotify’s “freemium” business model, which includes on-demand streams to premium users’ phones. (One-year-old Spotify is thriving in Europe, but its model may look different when it arrives in the U.S.) With tens of millions of devices that can support on-demand streams already sitting in consumers’ hands, and so many other consumer services moving to the cloud, it’s increasingly likely that the music-as-a-service model is ready for its moment at center stage.

For Rhapsody, being the first to offer on-demand streams to iPhone users in the U.S. has given the company a chance to audition for a huge new audience. Only 9 percent, or about 70,000, of its existing subscribers are iPhone owners, meaning that at least three quarters of those people downloading the new app — more than 260,000 — were non-subscribers testing out Rhapsody for a limited trial period, rather than adding a new mobile component to an existing Rhapsody subscription. It seems likely that a small percentage will stick with Rhapsody, others will comparison shop once other mobile streaming apps such as Spotify’s appear on the U.S. market, and most will revert to whatever they can stream for free.

In an interview, Rhapsody VP of business management Neil Smith told me the company’s subscriber base “could double or triple over a reasonable period of time” as on-demand mobile streaming boosts consumer interest, though he said expecting to reach such a goal within 12 months would be optimistic. Ultimately, he believes that less than a quarter of its customers will be desktop-only users, with an additional group sideloading tracks to mobile phones or MP3 players, but not streaming songs on demand on those devices. (Close to 20 percent of Rhapsody’s existing customer base signed up for the service via a partnership with Verizon that bundled it into music-enabled phones — which clearly aren’t iPhones. It will roll out to other smartphone models as well, according to Smith.)

The burst of interest in Rhapsody’s app certainly reveals pent-up demand for mobile streams. Some consumers will surely be willing to pay for the chance to hear what they want, when they want, wherever they are. But many would still rather own their music, and some will be content with more restrictive, but free, options. It’s possible that the success of mobile streaming apps will mean that the music-as-a-service model’s time has finally come. We’ll know it has when people stop experimenting, and start paying.