Rhapsody's managers were right in predicting more than a decade ago that consumers would one day flock to subscription music services. The only problem is, Rhapsody isn't one of the services they're choosing.
The pioneering music company has laid off 30 workers, or about 15 percent of its staff and has plans to replace several top managers, including Jon Irwin, the executive who has led Rhapsody the past three years, sources close to the company said. Irwin is stepping into an advisory role. The Verge last week broke the news that Rhapsody was looking to replace Irwin. Also out is Adi Dehejia, the company's CFO. Dehejia will be replaced by Ethan Rudin, who was formerly with Starbucks strategy and corporate development group.
The shakeup at Rhapsody is just another indication of the uncertainty in web music Columbus Nova, the investment firm that owns Harmonix, maker of the Rock Band videogame, has acquired a stake in Rhapsody. The Verge's sources say that Columbus' representatives are now calling the shots inside the music service. Previously, software maker Real Networks and Viacom, parent company of MTV, each owned a 47-percent share of Rhapsody. It's unclear how ownership is split now.
Rhapsody and Columbus said in a statement, "Rhapsody’s Board has decided to rebalance and restructure US operations, and add resources to enable the company to accelerate its efforts in Europe and emerging markets."
Columbus also said it is searching for a new leader. That's not an unusual spot to be in for a music service lately. In the last six months, a number of digital music services have either replaced top management or are in the process. Sirius XM hired a new CEO in April, and last week Pandora named a replacement for Joe Kennedy, the outgoing chief exec. Rdio is hunting for someone to replace CEO Drew Larner.
The turnover in the executive ranks and layoffs is just another sign of the uncertainty in web music. In the post-Napster era, we've yet to see a single digital music distributor generate lasting or significant profits. More recently, Spotify's losses have grown. Grooveshark has cut the size of its workforce. Rdio has struggled to keep pace with Spotify in terms of building an audience. In this environment, Rdio and others are trying to stay competitive. Operators of these sites say the obstacles are significant, as consumers remain reluctant to pay for songs and the cost of licensing music is still too high. On the positive side, some of the biggest companies on the web are rushing into the sector. Google Play has launched a subscription service, and Apple's new Pandora-esque web radio feature is supposed to debut Wednesday. YouTube is said to be working on a subscription service as is Beats by Dre, the headphone manufacturer.
Still, if you want to know where this is going, all the signs point to a shakeout. There's just not enough listeners or venture capital to go around. And if you're an investor and you see Eddy Cue, the iTunes chief, steering that juggernaut in your direction, it might be a wise to ask whether it's smart to stay in the game.
Web music's bleak history
- Aol MusicNow: Purchased from Circuit City in 2005, shuttered in 2007. Offered a la carte downloads as well as subscriptions.
- Napster: Originally known for being the first P2P music sharing service to gain a widespread following, relaunched numerous times by Roxio and Best Buy before eventually being purchased by Rhapsody.
- Yahoo Music Unlimited: Opened in May 2005, shuttered in September 2008. Users could transfer their subscriptions to Rhapsody. Subscription based; users could pay extra to download individual songs to burn to CD or put on a portable player.
- SpiralFrog: Opened in September 2007, shuttered in March of 2009. Ad-supported and allowed free downloading of music. Only offered songs from two of the top labels. Tracks couldn’t be burned to CD or played on an iPod or on Macs.
- MTV Urge: Opened in May 2006, merged with Rhapsody in August of 2007. Was built into Windows Media Player 11 and offered subscriptions as well as single-track purchasing.
- MSN Music: Launched in 2004, closed in November 2006 as Microsoft began focusing efforts on the Zune hardware and Zune Marketplace. Started with 1.5 million songs, but trimmed to 1.1 million songs due to licensing problems and lack of support.
- Imeem: Founded in 2003, the service evolved into a social network that let users share tracks with each other. Like SpiralFrog, it offered free listening to users and then tried to support itself through ad sales. MySpace acquired the company's assets and shut down the service in 2009.
- Project Playlist: Opened in 2006, it let users locate freely available songs online (typically pirated) and create playlists that could be posted to MySpace and Facebook. The labels sued and then prompted MySpace to block the playlists. The company went bankrupt in 2010.
- Sony Connect: This was Sony's failed attempt to duplicate iTunes. While Sony could never get Sony's music label, software, and hardware divisions to cooperate, its efforts were plagued most by poor software. The store closed in March 2008.
- MOG: Founded in 2005, the paid subscription service competitive with Rdio and Spotify sold out cheap to Beats Electronics, the company behind the ubiquitous headphones.
- Zune Marketplace: Microsoft’s attempt to recreate Apple’s integrated strategy launched in 2006 alongside the Zune hardware, offered a la carte downloads as well as the "Zune Pass," a music subscription that also included free song downloads each month. Transitioned to Xbox Music in October 2012, though desktop, mobile, and Xbox 360 apps still work.
Update: Rhapsody has issued a press release confirming our story.