Rhapsody, keeping up growth, reaches 2.5M paid users

Rhapsody is on a roll.

The company, which helped pioneer the model for subscription streaming music, said Wednesday it reached more than 2.5 million paid subscribers worldwide, with user rolls growing by about 60 percent from a year ago. This comes after Rhapsody said in July it hit 2 million paid members -- a big milestone after it took the company a decade to reach 1 million.

"This represents probably the biggest jump in subscribers in company history," finance chief Ethan Rudin said in an interview.

Still, although this growth is a positive sign for the newly resurgent Rhapsody, which was founded in 2001, the company remains well behind younger, higher-profile rival Spotify, which has 15 million paid subscribers and 60 million active users worldwide. Pandora, the Internet's largest radio service, has more than 80 million active listeners, though most use only its free, ad-supported service.

Rhapsody is benefiting from the growing popularity of streaming music, which has become a bigger slice of music sales in the past few years. In the US, streamed music accounted for 27 percent of music sales in the first half of 2014, up from 15 percent in 2012, according to the Recording Industry Association of America. Meanwhile, music download sales -- the biggest piece of total US sales -- and physical sales are dropping.

However, all that increased attention brings with it much more competition, as major tech firms including Apple, Google and Amazon have jumped into the streaming-music game, with smaller players such as Rdio and Deezer in the mix, too. That means Rhapsody will have to work even harder if it hopes to keep up its recent growth.

Some of these firms, like Rhapsody, only offer their service for a regular subscription fee. Others, such as Pandora and Spotify, offer a so-called "freemium" model, letting users listen to music alongside ads, in hopes of eventually moving them to a paid service.

Rudin said Rhapsody plans to succeed by focusing on mobile, in particular more partnerships with wireless carriers, as well as more deals integrating its service in cars. The company last year struck a deal with T-Mobile to offer its UnRadio subscription service, and said Wednesday UnRadio subscriptions jumped 67 percent during the holidays. Rhapsody has also been able to grow in less than two years from three to over 30 countries thanks to partnerships with other carriers including Spain's Telefonica and France's SFR, using its international brand, Napster. Rudin said customers should expect more of these kinds of deals in the future. Rhapsody isn't alone in partnering with carriers -- for instance, Apple's Beats has a deal with AT&T, as well.

Although his company's user base is smaller than some rivals, Rudin said Rhapsody benefits from a profitable and sustainable way of offering music that's allowed it to last, regardless of the "wacky growth numbers" reported by some nonsubscription services.

"In a world where there's all sort of attention being paid now to digital music," he said, "this is a business that we've been in for 13 years."