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Interview: Rdio CEO Says Subs Will Boom (But First, That Apple Problem)

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In the unlimited music subscription race, Drew Larner reckons his pay-for service has a much better shot at surviving than certain other rivals which employ advertising.

But even so, Larner says Apple’s new subscription will make it “untenable” for Rdio to exist on iOS devices.

Talk about bad timing. Rdio, started by Joost and Skype entrepreneurs Niklas Zenntrom and Janus Friis, timed the announcement of its new, iPhone app for Wednesday – which turned out to be a day after Apple (NSDQ: AAPL) said it wants to take nearly $3 of each $9.99 monthly subscription Rdio customers pay through the mobile.

“I would echo what the heads of some of my competing companies have said,” Larner says. “From a financial standpoint, that fee is certainly untenable for us, that’s obvious. If it creates a situation where it’s not financially possible for us to be in the environment, that’s a loss for consumers and I don’t think that’s a good thing. We’re still evaluating what the policy looks like and the ins and outs.”

Apple’s announcement matters because services like Larner’s, aggregators for content, are trying to turn the entertainment market from one in which content is bought as single units of consumer product to one in which consumers have unlimited digital access on multiple devices through the key of subscription.

“Look at Netflix,” says Larner, who this week moved his family from LA to San Francisco, where the company’s based. “People don’t need to own movies. That same shift will happen in the music business.”

It’s that goal which Rdio is shooting toward, along with Spotify, Rhapsody, Mog, We7, Sony (NYSE: SNE), soon perhaps Google (NSDQ: GOOG) and more. Labels are keen for such services to provide competition to iTunes and return digital music to bigger growth.

“The labels would like to have viable competitors (to iTunes), but they wouldn’t be licensing companies like ours if they didn’t believe there’s a real opportunity here. The opportunity of subscription revenue on a recurring basis is very attractive to them, because it’s not just a one-time purchase.

“This is a marathon, not a sprint; it’s not going to happen overnight where people give up downloading individual tracks or albums. But subscription music’s been around a long time, seven or eight years. When you look at content generally, forget about music, subscriptions for content came with cable television in the late 70s. The shift will happen over the next couple of years rather than over the course of a decade.”

Zennstrom and Friis, who formed Skype and Joost, started web-based Rdio in 2009 to exploit the opportunity, hiring Larner who, at Europlay Capital Partners, had advised the pair on their various projects since KaZaA, their P2P music sharing service, had started to go tits-up in a storm of copyright complaints.

The irony is certainly not lost on me, given all the litigation,” Larner says. “They always liked music and, out of that process, believe it or not, we gained respect with the labels through that process. The technology had reached a point where we could create a seamless experience, you don’t have to connect wires.”

Launched in August, Larner won’t divulge subscriber figures, but says he’s “very encouraged by the user response”. That’s while Spotify, trying to break in to Rdio’s sole North America market, competes with Rhapsody on over 750,000 paying customers and a total 10 million users.

“We have a free trial but have not chosen to adopt the freemium model that has been deployed in the market. We’re focused on building what we believe is a sustinable business model that stands the test of time.

“Lots of companies have come and gone trying to use advertiser-supported free to convert people to paid – the content costs are at a point where it’s challenging to support that with ad revenue and projected subscriber conversions to paid. Content has a cost associated to it, I don’t support this notion that content should be free.”

More reasons to pay are coming down the pipe – paid subscriptions are required for mobile and Sonos access, with more media players to come. Rdio, like Mog before it, certainly outguns Spotify for new music discovery.

“We have aims to be a global service,” Larner says. “Western Europe, Asia, South America over the course of the next couple of quarters.”

4 Responses to “Interview: Rdio CEO Says Subs Will Boom (But First, That Apple Problem)”

  1. What Apple doesn’t realize (or simply is ignoring) is that many app developers have already learned to circumvent their alternative payment restrictions. Some of our most successful merchants/app developers are using our Single-Click Checkout solution in their iOS apps today for recurring payments. Apple is simple giving app developers more incentive than ever to research other payment methods. We welcome that.

    John Loschky
    Single-Click Checkout

  2. and Apple subscription plan is not set up for you… you have to use the web, using an app subscription is like asking people to sign up for a subscription to a subscription… it ain’t going to work and it ain’t going to change for your business..

    app subscription is set up for really FREE subscriptions, as soon as the publishers realize that they make their money from advertising…

    the TV networks and media have already figured it out with the wildly popular ABC app that is FREE and FREE to watch new TV shows… they just have commercials in the content… DUHH….

    now every media company is copying ABC’s app…

    THAT is what the subscription service is set up for…

  3. your type of “music subscription” companies have literally been calling for a boom for the last 10 years, also predicting the death of iTunes for 10 years….

    you literally could have written that article 5 years ago, and there have been that many people who have tried the same exact thing as you… WHAT HAPPEN?

    beside the fact that your type of business does not work… NO one wants to pay $10 a month, when they could buy 10 songs… or watch songs on youTube for free… the kids don’t even slightly consider your option… you have lost and you don’t even know it yet…. worse the record labels are going to force you to raise prices sooner than later… guess what happens to your tiny base then.

    you just don’t get it yet, even Rhapsody is losing customer base, from their already tiny customer base.

    they predicted the same thing you did two years ago and 3 and 5…..

  4. RDIO only has 50k subs and cannot survive unless it triples or quadruples its paying user count. They are whistling by the graveyard on this new apple deal because it effectively wipes out the growth channel that got them to 50k subs in such a hurry. No need for both RDIO and MOG, their best chance will be to merge to get the necessary scale.