Spotify, Rhapsody, Pandora: Business Model Analysis

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Spotify, Pandora, and Rhapsody: Business Model Analysis

The Music Industry’s everlasting challenges have most recently undertaken targeted the digital consumption of music. As technology increases accessibility with media, specifically music, companies such as Spotify, Rhapsody, and Pandora have all taken a leap toward the online-streaming subscription route. Unfortunately, due to the lack of support from Artist’s and their management in the past, piracy of digital music, and matching royalty rates with their limited revenue streams, these companies face the difficulty of becoming the go-to access for music consumption. When digital music first came out, listeners had the option of discarding of their tangible forms of music. Like any other newly introduced technology, listeners had a hard time making the switch. The tough transition from CD’s, Tapes, etc. was mostly a result of the limited amount of devices that were available to consume digital music. In the last decade or so, music in the digital form has emerged immensely into many devices including computers, smart phones, TV’s, cars, tablets, video game consoles, and even a refrigerator. Rhapsody was a company that saw a valuable concept in the transformation to digital music when it was first introduced. Rhapsody was the first company to see success in the online subscription-based music service. It began it’s battle of pirated music before Spotify and Pandora, but continues to lag behind in terms of revenue and users. Spotify and Pandora use a similar business model by collecting their revenue from advertisements and subscriptions, but continue to outlast Rhapsody. In an article in the Tech section of CNN.com, contributor Richard Nieva said, “Rhapsody may simply have been ahead of its time. It advocated storing music in the cloud long before the idea, let alone the term, was in vogue.” Though the path to becoming the dominant source of consumption is clouded by other free services and illegal downloads, technology has proven to continually provided sources that aim to provide easier access to music through the internet. When Rhapsody first introduced the concept of a digital-music subscription service, the lack of technology left limited room for growth and success. According to Jon Irwin, the President of Rhapsody, “In the last couple of years, technology moved to the point where smartphones and networks make the product experience so powerful. More than 40 percent of activity on Rhapsody comes from mobile devices such as Android and iPhone.” Technology is the patch in the gap of accessibility by introducing new products that are compatible with such services. Irwin also states, “Two and a half years ago, there was no mobile access.” The jump from 0 to 40 percent of mobile activity in just 2 and a half years is a clear sign from user preference. Rhapsody, Spotify, and Pandora, all offer a paid subscription service to consumers for unlimited, free access. However, Rhapsody is the only one of these three businesses that does not offer unlimited free services. In a recorded interview conducted at random at Loyola University New Orleans, Music Major Collin Doruff describes his experience as a subscriber of Rhapsody as an easy, cheap access to a large music catalog. Doruff claims that his parents introduced him to the subscription, but that he uses Spotify personally. Perhaps Rhapsody is doing themselves a favor by focusing on keeping their loyal users and only offering a paid service, although they could gain many more followers by adding free us to their services. This could keep them from struggling to pay royalties, because free users would still rack up streams thus costing money in royalties. However, it renders them stagnant in growth of users while Spotify and Pandora users continue to rapidly increase. Spotify was launched in late 2008 by found Daniel Ek of Sweden. In mid-2011, Spotify was launched for use in the United States. Before obtaining the...
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