Music Streaming Service Rdio Moves to Free Music Model to Compete with Spotify and Rhapsody
Rdio’s revamped streaming app. (Rdio)
In the face of growing competition in the streaming music market, Rdio, a 4-year-old service that charges for online subscriptions, has moved into a new phase with abundant free music — as well as free music’s ever-present companion, advertising.
Rdio, which is based in San Francisco and offers its music service in 60 countries, has been admired by technology and music insiders for its clean design, but it has long played second fiddle to Spotify and Rhapsody. Its change to a so-called freemium model — which lures users with free songs and then tries to sell them more extensive features by subscription — will help it compete against those services and others like Beats Music and Google’s Play Music All Access.
“What we’ve learned collectively over the last few years,” said Anthony Bay, Rdio’s chief executive, “is that the most successful models are freemium models.”
Spotify has 10 million paying users around the world, and Rhapsody has 2 million. Rdio, which was started by the creators of Skype, has never revealed its subscriber numbers, although they are believed to be much lower.
Rdio’s new design, which fills a user’s screen with ready-made playlists based on her tastes, draws heavily on the Internet radio format, which was popularized by Pandora and has become increasingly important as digital outlets try to figure out how people prefer to listen to music online. The radio giant Clear Channel has made an aggressive push for its online radio platform, iHeartRadio. Recently Rhapsody introduced unRadio, a music service that is free for T-Mobile customers, and Google bought Songza, an online playlist service.
The growing competition for streaming music also involves Apple, which introduced its Pandora-like iTunes Radio service last year, and in May agreed to pay $3 billion for Beats Electronics, the company behind Beats headphones and the Beats Music subscription service. YouTube, a division of Google, is also developing a paid music service that is expected to be introduced this fall.
Rdio’s move is a result of a deal with the radio network Cumulus Media that was announced a year ago, in which Cumulus was granted an equity stake of at least 15 percent in Rdio’s parent company, Pulser Media, in exchange for providing content and promotional services that Cumulus says are worth $75 million over five years.
Rdio’s free version will be introduced in 20 countries Thursday. In the United States, its ads will be sold by Cumulus, which operates more than 450 radio stations and an advertising sales staff of about 1,600 people. Eventually, the Cumulus partnership will allow Rdio to use content from Cumulus’ stations and syndication network.
“This is the most exciting Internet radio product we’ve seen and provides a compelling complement to our nationwide broadcast radio platform,” said Lew Dickey, the chief executive of Cumulus.
With sales of CDs and downloads on the decline, subscription services like Spotify and Rdio have become the most significant new revenue source for the recording industry. Last year these services contributed $1.1 billion in revenue to the $15 billion global business, according to the International Federation of the Phonographic Industry, a trade group.
But these services have also had difficulty attracting paying users when so much music is available free. According to a study released last week by MIDiA Research, a market research firm that studies digital music, 34 percent of people who stream music online will not pay for music “because they get all they need for free from YouTube.”
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