Last week, after years of false starts, Spotify, the much-hyped music-subscription service, launched in the U.S. , three years after it opened shop in Europe.

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Rhapsody, MOG Execs Say Spotify's U.S. Launch Validates the Music-Subscription Business

Last week, after years of false starts, Spotify, the much-hyped music-subscription service, launched in the U.S., three years after it opened shop in Europe. Like its U.S. rivals such as Seattle-based subscription pioneers Rhapsody, Spotify offers its paying users unlimited streaming of millions of songs (15 million in their case) on their computers and smart phones. Unlike their competitors, Spotify offers an ad-supported free tier. For six months, users can access the service's catalog for free from their computers. After the trial period, free service will be limited to 10 hours per month, and no more than five plays of a single track. For $9.99, users get a service that's comparable to what Rhapsody--and competitors like MOG--currently provide.

Though Spotify is so similar to current services, its success in Europe--where it claims to have attracted 1.5 million paying customers compared to Rhapsody's 800,000--has caused a buzz that other services have not been able to muster. The excitement around the launch, it's been said, could give the subscription sector--long considered one of the most appealing ways to get listeners paying for more digital music--the bump it needs to hit the mainstream.

I recently asked leaders MOG CEO David Hyman and Rhapsody president Jon Irwin a few questions about the arrival of their new competitor. Here's what they said:

What are your thoughts on the entrance of Spotify to the U.S.?

Rhapsody CEO Jon Irwin: We'd be more worried if Spotify had decided to give up on launching in the U.S. because it wasn't worth the trouble. Many have tried to succeed in this market--and failed. Only Rhapsody has built a successful business with a large, paying subscriber base, a recognized brand, and wide distribution. We are confident in the strength of our service, brand, and the maturity of our business to sustain our leadership position, and will continue to build on the deep partnerships we have with the labels, mobile operators, CE companies, and channel partners over the past 10 years to bring the Rhapsody service everywhere our members are. As Spotify's challenges coming to the market have shown, this is no small accomplishment--and we're just getting started.

MOG CEO David Hyman: The space is heating up, and we love the focus on music in the cloud. MOG is focused on delivering the best all-you-can-eat music service. We want to ensure our users have access to music in ALL of the places they want it--online, the phone, in the living room, and in the car. MOG provides the easiest-to-use discovery tools, the highest quality audio (320kbps), the best restriction-free radio in the world, and the best personalized recommendations via Facebook integration (with more to come).

Do you anticipate Spotify chipping away at your market share? Or possibly being good for your service in the long run?

MOG/Hyman: The new entrants in the digital-music ecosystem validate the space. We've got a killer product that we're continually improving upon to ensure we're delivering the best possible listening experience and making music available to people in ALL the places they want it--online, the phone, in the living room, and in the car.

We're working with top-tier partners and can't wait to introduce even more ways for consumers to experience the ultimate way to discover, share, and listen to new music.

Our recently launched beta HTML5 player is a testament to the direction we're headed--we're bringing social music discovery front and center!

Rhapsody/Irwin: All the recent activity in cloud-based music businesses validates what we have believed all along. There's nothing new about what Spotify is bringing to market in the U.S., but we do think that all the attention the company is bringing to the sector will benefit all players, as awareness of the on-demand access model has been one of our greatest challenges. We're encouraged by feedback on our customer forums, which indicates that many who have tried Spotify prefer the Rhapsody experience, and we believe that the core Rhapsody customer--who we call the "Music Seeker"--will not be satisfied by the limitations of the free Spotify tier. Beyond the listening limits, another deal-breaker will be the lack of mobile support. Forty percent of Rhapsody streams are over mobile, and mobile has been the most significant driver of our business. People want to take and share their music everywhere, across a myriad of devices.

Why don't you offer a free tier of your service?

Rhapsody/Irwin: We believe the freemium model devalues music. It is not sustainable and does not lead to increased consumption, which is our ultimate goal--to let you listen to anything and everything you want as often as you want. Rhapsody is, at its core, a music company, and we believe that music has tremendous value. A premium, on-demand digital-music service brings a ton of value to consumers, and we have proven that a successful business can be built on this model.

We offer prospective members a variety of free methods to try Rhapsody, and are continually refining the optimal way to deliver their Rhapsody Moment--when they catch that first glimpse of what it means to have access to any song they want, when, where, and how they want to enjoy it. We will continue to experiment with the formula, and continue to convert loyal, enthusiastic members who also place value on music; which could include longer trial periods. However, we have found that people convert sooner, rather than later, during a trial period.

MOG/Hyman: MOG is working towards a revised model that provides potential new subscribers with a great taste of the service before they buy in the coming months.

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