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Subsciption music: subscribers wanted

Realnetworks_logo RealNetworks just reported that subscribers to its paid music services (Rhapsody and Real's premium Internet radio stations) dropped slighted in the final three months of 2007, from 1.925 million to 1.9 million in the previous quarter. Rival Napster on Wednesday reported a similar drop in the fourth quarter, from about 750,000 to 743,000.

Napster_logo The number of subscribers for both services is still significantly higher than it was a year ago, and Real's revenue from music continued its steady rise -- aided, no doubt, by the price increase that Real imposed in May (from $10 to $13 per month for basic members). Because Real hasn't disclosed how many of its subscribers go for the more expensive Rhapsody products vs. the radio service, it's hard to tell which was more responsible for the decline, if any. Still, with the two leading subscription music services both reporting some degree of slippage, it begs the question whether the demand for this kind of thing has peaked. Real's numbers will certainly grow as it takes over Yahoo's subscriptions, but that's just shifting dollars from one pocket to another. Have subscription services reached the point where it's a zero sum game? Probably not -- no one has promoted a subscription service the way Apple markets iPods and iTunes -- yet the back-to-back reports from Napster and Real suggest that demand is cooling.

*Update* -- Ronda Scott of Real weighed in, saying this was indeed the first time Real has reported a decline in music subscribers. But she also suggested that Rhapsody isn't the one that suffered:

Yes, this is the first quarter that we have reported fewer subscribers quarter on quarter. Of course at the same time revenue is up this quarter, we’ve traded some lower priced subscribers for higher priced subscribers.

*Update 2* -- Ooops. As Ms. Scott pointed out a few minutes later, Real's latest financial release shows a similar dip in music subscribers in the second quarter of 2007, from 1,875,000 to 1,850,000. Mea culpa.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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