As I walked through Rhapsody’s San Francisco office on Monday I noticed something on a colleague’s desk: a 12-inch vinyl-only single of  “Before Your Eyes” by Atoms For Peace, the super group founded by Thom Yorke and his longtime collaborator and Radiohead’s producer Nigel Godrich.

While the release AMOK has been a staff favorite since February 25th when it was released, the timing of  the release of the vinyl single is interesting, as it just so happens that Mr. Yorke and Mr. Godrich chose to take on Spotify, in what Mr. Godrich called a “small, meaningless rebellion.” As Mr. Godrich puts it “The numbers don’t even add up for spotify yet….But it’s not about that….It’s about establishing the model which will be extremely valuable. Meanwhile small labels and new artists can’t even keep their lights on. It’s just not right.” So, the duo chose to pull Atoms For Peace’s music from Spotify, along with Thom Yorke’s solo effort Eraser, in protest.

Jon Maples, Rhapsody
Jon Maples
VP Product, Content
Part of the Godrich’s argument is that the money being produced for new artists pales in comparison to the money given to companies with huge catalogs of music and that new artists just don’t see real money. As my friend Anu Kirk points out, Macklemore and Ryan Lewis certainly saw a significant increase in their revenue from streaming. Rumor has it several hip hop artists have also made multiple millions of dollars from streaming alone.  And these are still early days.

My contention is that folks against streaming perceive that millions of streams are being consumed and producing a pittance of revenue compared to selling a couple thousand records. Let’s just agree: the goal isn’t millions of streams. It’s billions and trillions.  The fact is we really haven’t seen streaming scale yet, especially compared to retail sales.

While Spotify is on everybody in the industry’s breath as an exciting new platform, let’s keep in mind that streaming services have just started to crack the consciousness of music consumers. NPD recently published a study that showed only 12% of the highly valuable young-adult demo are currently using Spotify. Nearly 80% of that same age group has yet to even try it, and over 50% hasn’t even heard of the service.

If you combined the all reported subscribers of all the services in the United States market, the numbers are far south of 10 million customers. Meanwhile NPD reported that 78 million Americans bought music in 2012, and that number has been going down steadily since the original Napster launched.

The value proposition of a streaming service is that a customer subscribes to access to the music. And services provide products that help embed music throughout the customer’s life, primarily thanks to pervasive smartphone adoption.

We believe that it is the best chance to build a new legion of music customers. And instead of having to head to the store or iTunes to buy music, these customers pay for the service month after month after month. These customers are pre-paying for all the music they can listen to.

Playing It Straight

Part of what Godrich was pointing out was not that streaming services don’t *pay *artists, but rather, that customers don’t *listen *to new music on streaming services. While it’s true most Rhapsody fans listen to bands they know, in particular when starting with the service, they also are extremely adventurous listeners. After all, since they are paying for the service, it only costs them their time. Case and point: our customer panel comprised of our most loyal, long-term listeners have played artists from over 200 genres (out of 350) over a period of a year.

As for discovery, since the day we launched, curation has been a cornerstone of the Rhapsody service.  We have invested considerable resources into a staff of music experts who create awesome music experiences for customers and surface music selections across a wide spectrum of genres and popularity. We provide playlists, radio stations, album picks as well as features that allow fans to find more music that they might like. We also have a many features baked into the experience that augment discovery and are consistently working on new ones.

Paying The Piper

As mentioned, previously, all of our customers are paid. So our goal is to identify people who are willing to pay for a music service. We’ve found a bunch of them, and they are extremely loyal.

Since we’ve been in business 10 years, you’d expect that we would have the longest tenure customers of any streaming service. But we also have amazingly engaged music fans. We’ve worked very hard to improve our active rate and the number of days that a customer plays music. As we’ve mentioned, our job is to make Rhapsody a daily habit, and we’ve made great progress towards achieving that goal.

As you might imagine, people who are willing to plunk down their credit card to pay for a music service are probably willing to buy other types of music product, right? Absolutely.

Nielsen recently published a study of music consumers and found that users of paid subscription music services over-index on music related purchases.  In particular, 51% of Rhapsody customers bought a CD, 66% purchased a digital track, 52% bought concert tickets, and 40% purchased merchandise, like tee shirts.  All these numbers far outpace the average American by a wide, wide margin.

Okay our customers listen to their favorite artist and also purchase a bunch of products related to their favorite bands. But we’re just selling them Rhapsody, right? We believe that Rhapsody is the place where artists can market directly to their fans–where they are listening to the music. Because let’s face it, the fan is much more likely to purchase music related products when the artist is top of mind…and in the player.

Sound Salvation

So that’s what Rhapsody is focusing on: working with partners and artists to help complete the fan experience within the service. We must to figure out smart ways for artists to be able to market directly to Rhapsody fans to buy a concert ticket, a tee-shirt or in Atoms For Peace’s case–the limited edition 12-inch single I saw on a colleague’s desk on Monday.

Just to clarify: Rhapsody doesn’t blame any artist for withholding content. It’s a business decision that the artist and management must make and we respect that to the utmost. We always will want to make our case to management, but we certainly understand that tough decisions must be made.

Additionally, we agree with Godrich when he tweets, “It’s up to streaming providers to come back with a better way of supporting new music producers.” Amen. The entire industry needs to work harder to provide more value to artists, because if they can’t make a living, then we don’t have a product. At Rhapsody we’re up for the challenge.

Let me start by linking to Atoms For Peace 12-inch “Before Your Very Eyes.” It’s really great. Go buy it now! But if you want to stream tracks from the record legitimately? Well, then you’re stuck with YouTube videos or searching on Google.

Post By: Jon Maples, VP Product, Content, Rhapsody