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You Can (Almost) Take it With You

Rhapsody’s 3.0 launch officially doubles the size of the portable subscription model market. Don’t expect more doubling until the device support catches up.

With the launch of Real Networks’ Rhapsody 3.0, the company found out first hand how rough the digital music waters become when trying to educate consumers about portable subscription models. The launch – the first major revision of the company’s digital music player and service since April 2003 – came about this week with a gala event in New York City. 

Real joins a market pioneered by Napster’s Napster To Go service. Like other subscription services, subscribers to Real’s Rhapsody to Go service can only play songs on the approved devices and as long as they maintain their subscriptions. Once a subscription lapses, the songs disappear from the portable players. Napster unveiled its new service with splashy ads at this year’s Superbowl.

Real’s portable subscription plan launch “is indicative of a trend we’ll see adopted by other companies,” says Phil Leigh, an analyst with Inside Digital Media. “I think we’ll see Microsoft and Yahoo, and maybe even Apple subscription portability services sometime this year.”

In addition to a new user interface, the ability to manage music stored on your hard drive, and an offer that gives new subscribers 25 free streams per month, Rhapsody also boasts an important feature:  subscription portability. This allows Rhapsody users (those willing to pay $15 per month, as opposed to the basic $10 per month fee) to move as many of the more than 1,000,000 subscription songs to their digital music players as will fit. 

But not every digital music device will play Rhapsody To Go music. In fact, very few will. In the best of circumstances, explaining this key fact to subscribers is a difficult task. When subscribers are angry and feel misled, the difficulty is compounded.

Already, Real is facing a backlash on its message boards from angry consumers who believed the “To Go” plan meant they could port songs to their iPods – something that is not allowed. Consumers were confused, it seems, by the fact that non-subscription downloads purchased from Rhapsody can be played on iPods, whereas subscription-based streaming songs cannot be moved to iPods.

“I just cancelled Rhapsody [after] 2 years,” wrote “Deisel” on one Rhapsody message board.  “Let’s get something straight here. IPODS are [the majority] of the market, I am not going out to buy 1 of 5 or 6 MP3 players just to use this service. The Ipod [sic] is a far superior device and meets my needs. I was sold a bill of goods yesterday that THEY COULD NOT DELIVER!”

Currently, only a half dozen or so models of digital music players from manufacturers such as iRiver, Creative Zen, and Gateway support Microsoft’s Windows Media 10 (also known as “Janus”) technology that makes subscription portability programs such as Rhapsody and Napster possible. These models inhabit the less-than 20 percent share of the digital music player market not owned by Apple’s iPod.

Unfortunately for Real and Napster,  Microsoft’s Janus technology was mired by delays (it was originally announced in September 2003) and the eventual launch missed many manufacturers’ production deadlines for the holiday season of 2004. Still, many believe Janus-compatible devices are coming, just not as quickly as Real, Napster, and their subscribers would like.

“There’s excitement among vendors for Janus and these services,” says Susan Kevorkian, an analyst with IDC. “But consumers are still confused about the technology and the value proposition, and as a result, manufacturers have been tentative about introducing the new technologies.”

Despite these issues, some signs point to consumers as a whole warming to the concept of subscription services. According to a December 2004 survey by Jupiter Research, 50 percent of 13 to 24 year olds responded that they were interested in subscription services. And while Napster’s To Go service hasn’t lit the world afire, it has contributed to subscriber additions for the company.

In the company’s most recent quarterly earnings announcement, Napster stated that net additional subscribers for the March quarter totaled 143,000, up from 88,000 the previous quarter.

“The only thing they’ve said publicly about their portable program is ‘It’s in the early stages,’” says Gene Munster, an analyst with Piper Jaffray. “That translates to ‘It hasn’t taken off.’ But it’s a growing market and people are just learning about this.”

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