Rhapsody, Now Independent, Reboots With a Price Cut

Rhapsody has officially become an independent company, two months after former parent RealNetworks revealed plans to cede majority control of the music subscription provider. Now a standalone entity in which RealNetworks and Viacom possess equal minority stakes, Rhapsody also said today that it will offer a $10 monthly subscription service in an effort to better compete with several innovative and inexpensive rivals that have sprung up in recent months.

The new price point reflects an industry-wide drop in the cost of all-you-can-eat music services, which deliver access to a large library of songs for a monthly fee, even as their providers add mobile functionality. Rhapsody has taken steps to evolve alongside newer subscription services such as MOG and Thumbplay, which offer cloud-based streams to both desktop PCs and mobile devices for about $10 per month, as well as free alternatives. Rhapsody traditionally delivered streams to the desktop, along with “tethered download” files that can be loaded onto certain mobile music players, for about $15, but added cloud-based access through its iPhone app beginning last September.

Rhapsody has also recently renegotiated its licensing fees with content owners, representing more realistic expectations from labels. While confidence in free streaming models is fading, Warner Music Group chief Edgar Bronfman Jr. said recently that the label is increasingly willing to experiment with paid subscription models.

Along with the ownership change and price cut, Rhapsody introduced an application that runs on Android phones, along with a new logo (pictured). Despite the overall reboot, existing subscribers will have to can either contact the company’s customer service department or update their accounts on the Rhapsody web site to sign up for the new pricing plan; otherwise they’ll continue to be billed at the old subscription rate.

Although some of its upstart rivals have garnered more attention lately, Rhapsody is still among the largest subscription providers in the market with more than 675,000 subscribers as of the end of 2009, according to RealNetworks, down from a peak of 800,000 earlier in the year. Competitor Napster, owned by Best Buy since fall 2008, no longer reports the size of its subscriber base, but was last known to have 708,000 subscribers around the time of its acquisition; Spotify recently said it had signed up 325,000 paying customers in Europe, and is still planning a U.S. launch, originally slated for late 2009.

Rhapsody’s spokesman said the company is forecasting profitability by the end of 2010, with revenues near $130 million. RealNetworks invested $18 million in cash as the company was spun out, while Viacom said it will contribute $33 million worth of advertising inventory to promote Rhapsody on its properties, including MTV Networks.

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