FROM FUTURE BOY... ITUNES VS. RHAPSODY

Just a comparison article. Pasted below because I don't know if Business 2.0 blocks access to their archives.


iTunes vs. Rhapsody
Music-download store or digital-jukebox subscription? Ultimately, we'll want both.

By Erick Schonfeld
Business 2.0
February 20, 2004

In the budding digital-music industry -- as Steve Jobs likes to point out ad nauseam -- Apple (AAPL) has the upper hand. It boasts both the most popular music-download store (iTunes) and the most popular digital-music player (the iPod). Pepsi (PEP) is giving away 100 million iTunes songs, and Target (TGT) is going to start selling prepaid cards for iTunes. But while Jobs would like the world to think that he's already won the digital-music game, the truth is that the game has hardly begun.

Right now there are two ways for consumers to pay for digital music: They can buy songs and albums à la carte from a download store like iTunes or they can subscribe to a digital-jukebox service like RealNetworks's (RNWK) Rhapsody. The iTunes store has taken off because it presents a familiar model for buying music online: You pay 99 cents for a track that you can keep, copy, and move around forever, just as you would a CD and its contents. This is a system people feel comfortable with. Thirty million downloads (and counting) don't lie.

The subscription model presented by Rhapsody is not as easy to grasp. Rhapsody is like TiVo (TIVO) in that it is nearly impossible to explain its appeal to someone who has never used it. But Dave Williams, Rhapsody's general manager for music services, warns, "Don't assume that downloads are taking off faster than subscriptions." Rhapsody went from streaming 12 million songs last July to 42 million in January. RealNetworks's music subscribers total 350,000, most of whom are paying $10 a month for Rhapsody. The scrappy music service has inked deals with Best Buy (BBY) and Comcast (CMCSK) to sign up more subscribers. And in January, RealNetworks finally launched its own separate download store, which is integrated into the latest version of its RealPlayer software.

In terms of money and mind share, though, iTunes is lapping the competition. That's because Jobs was able to line up licensing deals with the major music labels and jump-start the digital-music business by proving that people would actually pay for music online. His celebrity status no doubt helped in the negotiations, but one of the main reasons the music industry gave him a chance was that he initially limited the service to the Macintosh market. Licensing to Apple was palatable to the labels because it was a controlled test in a tiny, cordoned-off fraction of the market. Only after a successful outcome did Apple expand the service to the larger Windows world. Now other Windows music stores, from RealNetworks's to Wal-Mart's (WMT) to the new Napster, have piled into the market, and there are more on the way.

As the digital-music business becomes respectable (the folks at Rhapsody figure it will grow from last year's $75 million to as much as $500 million in 2004), two things will happen. There will be a shakeout among all the download stores -- there are already too many of them -- and subscription services will slowly but surely become more popular. That's because nobody makes money off downloads, even at 99 cents a pop. As Tim Quirk, Rhapsody's executive director, puts it, "iTunes sells iPods. Real's music store sells Rhapsody subscriptions."

Upselling and cross-selling seem to be the motives of the digital-music providers, but what will motivate consumers? To attempt to answer that, I can only relate my own experiences with both iTunes and Rhapsody. Since I usually use a Mac, I started buying songs from iTunes when it first came out last spring. The iTunes store is elegantly laid out and easy to use. I'd say I find what I'm looking for about 70 percent of the time, and the selection is getting better. (It's sort of as you'd expect: lots of Prince, no Hüsker Dü.) Searching for songs, artists, or albums is fast. Each artist's page comes with a list of top downloads for that artist, and you can listen to a 30-second clip before buying a song. The ability to buy one track at a time is key. For instance, I was able to save $13 by buying just the seven songs I really like from Outkast's latest double album. I also found a David Bowie cover of the Pixies song "Cactus" on an album I would never have bought in its entirety. And there are clever ways to find new music, such as through celebrity playlists compiled by the likes of Michael Stipe, Billy Corgan, and even Burt Bacharach.

After hooking up a pair of decent speakers to my computer, I pretty much stopped buying CDs. iTunes had helped me make the jump to digital music, and I was a happy camper. But then listening to all of those 30-second clips to make sure I was buying the song I wanted started to become a hassle and take up a lot of time. A few weeks ago, I tried out Rhapsody on a PC (it's not available on Macs). It was a completely different way to listen to music, and once I got the hang of it, I began to understand where Quirk gets the cheek to say, "iTunes is yesterday disguised as tomorrow." iTunes may be the best way to purchase music online, but Rhapsody is positively addictive. Since logging on to Rhapsody, I rarely check out iTunes anymore.

As a Rhapsody subscriber, I have access to nearly 600,000 songs. Instead of 30-second clips, the entire songs are streamed to my computer. I can save artists, albums, and radio stations to my playlist and listen all day. I spend more time listening to music than trying to figure out which tracks to buy. Rhapsody's music-genre tree is far more extensive than Apple's (for instance, within the alternative genre, there is a dream-pop subgenre, which, in turn, contains a space-rock subgenre that includes bands like Mazzy Star and Spiritualized -- it can get pretty specific). And there is a custom radio-station feature that allows me to enter five artists and creates a random sample of songs from those artists and all their influencers, contemporaries, and followers. I find myself listening to many songs that I wouldn't necessarily buy but do have the urge to hear, like "Aah ... the Name Is Bootsy, Baby," by Bootsy Collins. I've also discovered lots of great back-catalog albums that I never owned, such as The Byrds Play Bob Dylan. Best of all, Rhapsody makes it easy to explore and take a chance on musicians I might not otherwise have been exposed to, such as Bebel Gilberto, a sultry bossa nova chanteuse from Brazil (and daughter of bossa nova great Joao Gilberto).

What gets you hooked on digital music is the access to a virtually unlimited pool of songs. But filling your iPod with 10,000 songs at 99 cents each will quickly become prohibitively expensive. That's why I believe that, over time, subscriptions will become more popular, especially for serious music fans, savvier Internet users, and older consumers who might enjoy a wider range of genres and styles than that found in many physical record stores. Ultimately, subscription services will have to merge with the store concept, because there will always be that subset of albums that you just have to own.

Right now the problem with Rhapsody, besides the fact that it is not available on Macs, is that you have to be connected to the Internet to enjoy it. It is possible to burn a track to a CD for 79 cents, but RealNetworks offers a better buying experience through the RealPlayer Music Store, which is a separate application that is very similar to iTunes. What we really need is a combination of the iTunes and Rhapsody models. And that is exactly what RealNetworks is planning. Eventually the RealPlayer Music Store will be integrated into Rhapsody, and there is talk of allowing subscribers to download songs to MP3 players (the songs would disappear when a user's subscription ends). Rhapsody will never have the marketing budget of iTunes, but as broadband connections become more common, it should benefit. And then it will be interesting to see if Apple continues to insist that downloads are the only way to go.