Rhapsody CEO Jon Irwin On His Fight With Piracy, and the Shortsightedness of Coldplay and the Black Keys

Rhapsody CEO Jon Irwin, before and after the company hit a million subsribers.
It's been a banner month for Rhapsody CEO Jon Irwin: His Seattle-based music subscription service celebrated its 10th Anniversary with Built to Spill at the Showbox, today he makes official that Rhapsody has crossed the million-subscriber benchmark, and he recently shaved his head. The latter was his comeuppance on an agreement he made with his employees. You get us to a million, he said, and I'll shave my head.

But as he and his staff celebrate their successes, new challenges have emerged. U.K.-based competitor Spotify has driven the subscription-music narrative, along with its all-you-can eat, six-month trial (on P.C.s, not mobile devices) that's been wildly popular on Facebook. And Coldplay, the Black Keys and several other big-name acts have held back new releases from subscription services.

Some bands feel they're missing out on revenue from CD sales if they make their records -- particularly ones expected to top the charts -- available on subscription services that pay fractions of a penny per stream. Irwin thinks that's shortsighted, and has a theory: If you were to add up how much an artist is paid per play from a track that is purchased for 99 cents and then shared on the internet and stolen at will, artists, he contends, are making less per stream than they are on Rhapsody.

"Rhapsody, and services like Rhapsody -- premium, on-demand, subscription music services that focus on building a paying subscriber base -- they don't cannibalize CD sales," Irwin told me yesterday, "they cannibalize piracy."

Here's what else we talked about:

I see so many more people on Facebook are using Spotify than Rhapsody.

Spotify clearly gets the lion's share of the usage there on Facebook. They're able to acquire users of the service. Free users of the service. You're really a user, you're not a subscriber. Is it the most effective way to acquire subscribers? It's another variance on the fermium model.

Is Rhapsody profitable with a million subscribers?

Being private, we don't talk about our financials specifically. However, at a million subscribers, I'll tell you that the revenue that we generate, the gross profit from that revenue that we generate, is more than enough to cover the operating expenses to do what we do.

The great part about not being a public company ... I don't need to hit a net income target on a quarterly or short-term basis. Instead, I take the money that we generate from operations -- from having over a million subscribers -- and I plow that back into my business.

What do you account for some of the larger bands who've put out records in the last few months getting cold feet for the subscription services, such as Coldplay and the Black Keys?

I think it's shortsighted. We're about premium subscriptions. We're not about giving music away for free. Music being given away for free means that on a per-play basis, every time that song is streamed, the artist isn't going to make as much as they're going to make from a service that has a premium subscription model.

So, (artists are) looking at it, and it's s a bit unfair to lump Rhapsody into the same bucket as Spotify. So, I think to some degree they're reacting to the press and the news around Spotify, and the fact that it is a free model, and they go: "Wait. You're giving our music away for free? We're gonna pull back from these services."

As this becomes the dominant way to access music, the compensation to the artists is going to increase, just by the sheer growth in the business. We need to manage the threat to that growth in the business if too many artists decide to step back and say, "No, we're just going to go the old way." That's not healthy for the business in our view.

Will you shave your head again when the Beatles come on board?

For you, absolutely.

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