Real's Rhapsody: Streaming to change the music biz

AUSTIN, Texas--At South by Southwest here, I had a short but interesting conversation Wednesday afternoon with Tim Quirk, the vice president of music programming for Rhapsody, wedged in around a set from Jersey punks Titus Andronicus (who had very tight and well-constructed songs with incredible energy and some interesting triple-guitar work, but I don't know if the singer's going to make it another three days).

Quirk, who's been with Rhapsody since before it was acquired by RealNetworks, suggested that streaming music on demand will change the mechanics of the music business because artists (and other stakeholders) won't be compensated based on how many people buy a song or a record, but rather on how many times people actually listen to it.

For labels, it won't make sense to sign cute, disposable artists, and prop them up with hired-gun songwriters and producers in hopes of selling a couple million units over a single summer. Rather, the real moneymakers will be bands whose fans absolutely can't live without their music, and who listen to songs over and over again, for years.

That requires finding artists who already have sizable fan bases and then cultivating them over the years. Terrestrial radio might become even less important--there's no reason to saturate the airwaves with a single song in hopes of selling as many copies as possible before the buzz moves to the next thing; instead, you'll want word to grow more organically, creating lifelong fans along the way.

Of course, this is all predicated on a big "if": somebody has to find a business model for streaming music that works for all parties involved. First, money has to change hands--whether it's through users paying a subscription (the Rhapsody model) or advertisers paying to reach those users (the model espoused by Spotify and others). Then the operators of these services will have to convince copyright holders to accept a level of payment that doesn't drive the operators out of business.

That level of payment may be lower than the percentage derived from CD sales today, which is a big stumbling block for labels to accept. But in the long run, streaming music will lead to greater music consumption overall. When you have no limits on the amount of music you can sample, you're more likely to become a music geek.

Quirk had some statistics to bolster this point: in traditional CD sales, nearly 50 percent of the revenue comes from the top 100 selling records. With Apple's iTunes, it's about 33 percent; lower prices translate to people willing to sample more music. With free peer-to-peer networks, it's less than 30 percent--again, it makes sense that users would sample more music when it's free.

With Rhapsody, it's even lower--less than 25 percent. I suggested that that's because Rhapsody self-selects for music geeks--who else would pay a subscription for unlimited music? But Quirk countered that his usage statistics suggest that Rhapsody turns people into music geeks. That is, once people realize that they can consume unlimited music for the same price, they begin exploring related songs and bands, checking out recommendations from friends that they never would have bothered with otherwise, and so on.

Follow Matt on Twitter.