Subscription music service Rdio plans to create an ad-supported free music service as part of a new partnership with radio broadcaster Cumulus Media that could help it keep pace with Spotify and other competitors. The deal is expected to be announced on Monday, according to The New York Times, which first reported the news.
As part of the agreement, Cumulus, which owns more than 500 radio stations, will take a "significant equity" stake in Rdio's parent company, and in exchange will sell advertising for Rdio's new free service, the Times reported. Cumulus will also give Rdio "broad access to its programming," as well as "promote Rdio on its stations." Cumulus' interest in Rdio is to help expand the broadcaster's online presence. "This is our digital play," Cumulus CEO Lewis Dickey Jr., told the Times.
Rdio needs a shot in the arm With competition in the web music space heating up, Rdio needs a shot in the arm. Spotify launched its ad-supported, free service in the United States two years ago and is the sector's top player. Free music helped Spotify attract 24 million users and more than 6 million paying subscribers, believed to be the most among online music subscription services. Spotify's strategy is to attract users with the offer of free, and then persuade them later to upgrade to the company's paid service. There's little doubt that it's Spotify's success that is pressuring competitors to match its offer of free songs.
Up until now, accessing Rdio's music cost $5 to $10 per month. Rdio, created by the duo who founded Skype and Kazaa, doesn't release subscriber numbers, but most analysts believe the size of the company's audience is far smaller than Spotify's. Rhapsody, the oldest subscription music service, has struggled to build its audience, and may be rethinking its reluctance to offer free songs. Sources told The Verge last week that the company is looking to replace John Irwin, the company's president and someone who has been very critical of music giveaways.
Cumulus is handing over $100 million worth of content and services Though some of these services offer songs without charge to users, the music isn't free. The companies pay big bucks to license the songs. Spotify's losses are said to be mounting and the word out of Europe is that the startup is again looking for additional funding.
In the partnership between Cumulus and Rdio, no money exchanged hands and the deal was a trade, the Times reported. Still, the paper said that Cumulus is handing over $100 million worth of content and services. This could help Rdio as the cost of competing in subscription music continues to rise. The deal is also an endorsement, at least from Cumulus. It shows that at least some in traditional radio would rather join the subscription services than compete with them.