Like Selling Ice to Eskimos

Music subscription services have been hard sells in the golden age of Pandora Music and other free web-based radio alternatives.

If that wasn't obvious when Napster sold itself to Best Buy (NYSE: BBY  ) for barely more than its net cash position two years ago, it should be crystal clear now.

RealNetworks (Nasdaq: RNWK  ) and Viacom's (NYSE: VIA  ) MTV are spinning off their Rhapsody digital music service. This isn't some glorious offshoot of a fast-growing appendage. It's not even in the same camp as Time Warner (NYSE: TWX  ) unloading its problematic AOL (NYSE: AOL  ) two months ago.

No, Rhapsody isn't even going to IPO, apparently. The service will simply take on a few additional investors in a restructuring, freeing RealNetworks of operating control.

"Separating Rhapsody into its own independent company is a significant first step in making RealNetworks a more focused and profitable company," CEO Robert Kimball notes in the announcement.

That pretty much says it all, doesn't it? Rhapsody and Napster have struggled to turn a profit by offering music fans monthly smorgasbords of streams. Even the typically successful Microsoft (Nasdaq: MSFT  ) hasn't been able to brandish its bullying ways with its meandering Zune Pass.  

Is this simply an effect of the recession, or have consumers turned on paying for music streams?

Rhapsody closed out its third quarter with roughly 700,000 subscribers, down from more than 800,000 members when the year began. Best Buy hasn't broken down Napster subscriptions, but it wouldn't be a surprise to see that audience declining, either.

It's tough to move premium audio. Even Sirius XM Radio (Nasdaq: SIRI  ) shed net subscribers in 2009. The saving grace for the satellite-radio giant is that its account tallies are tied closely to auto sales. Once the car showrooms began showing signs of life in the latter half of last year, Sirius XM came through with back-to-back sequential gains in subscriptions.

Streaming services are different. Napster and Rhapsody may offer members the ability to preload their portable media players -- allowing them to go where many freebie digital music sites can't -- but that's clearly not a material differentiator for folks cutting back on frivolous expenditures. It also can't help that the explosion of the smartphone market is making Pandora and its digital cronies more portable.

This isn't a spinoff. It's a castoff.

Is there a future for music subscription services? How can this work? Share your thoughts in the comment box below.

Best Buy and Microsoft are Motley Fool Inside Value picks. Best Buy is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz is a music fan but not a current subscriber of a digital music subscription service. He does not own shares in any of the stocks in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool's disclosure policy is snowed in in DC.


Read/Post Comments (8) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 11, 2010, at 11:23 AM, MICHAELWWW wrote:

    298 dollars per year for 2 cars? I will not be renewing.

    this compnay is dead money in the long term.

  • Report this Comment On February 11, 2010, at 12:49 PM, jgorenflo wrote:

    XM is more affordable with the "Life Time" package they are now offering. It is around $500 for a life time plan that can be transferred up to 3 times for a $75 fee per transfer. If you keep a new car for an average of 5 years, and transfer the plan 3 times, your yearly costs have gone down to just over $48 per car per year. I don't know how XM can afford to do that, but it makes it more feasible for me.

  • Report this Comment On February 11, 2010, at 1:03 PM, ItAintCool wrote:

    On February 11, 2010, at 11:23 AM, MICHAELWWW wrote:

    298 dollars per year for 2 cars? I will not be renewing.

    this compnay is dead money in the long term.

    MICHAELWWW = Mysteriously joined MF today less than 1 hour after the article appeared. His only post is to bash SIRI. Neglects to even mention he's talking about SIRI in his post.

    MICHAELWWW= Astroturfer with no sense of how to stock bash-at best. Stock Manipulation Spambot searching for SIRI headlines -at worst.

    MICHAELWWW= FAIL

    MICHAELWWW= Try harder next time. The stock is up today.

    Go long on SIRI

  • Report this Comment On February 11, 2010, at 2:07 PM, jamf92 wrote:

    I love my iPhone and all it brings to me but Pandora, Rhapsody and Napster and not one of them. Tried them all thinking I would find a suitable alternative to my Sirius for less cost or for free and its like the saying goes "you get what you pay for". Sorry but as soon as Sirius came out with their app I was signed up for premium music streaming content for only $2.99 a month. For me free is just not worth it when I can drop a few dollars and get premium content. Go Sirius!

  • Report this Comment On February 11, 2010, at 6:21 PM, southernbeachguy wrote:

    Radio People have been bashing Sirus for years, because Sirus is eating their lunch. Terristrial Radio is a thing of the Past. Sirus has Sports, Talk, Music of all types, comedy, foreign music, etc .. something for everyone for the mear cost of 2 Lattes a month. Anyone that tries Sirus, never leaves.

    Better than that their Stock Prices keep going up slowly but surely every week. Sirus/XM Rocks.

  • Report this Comment On February 11, 2010, at 8:32 PM, paulbverizonnet8 wrote:

    sure wish the insiders would start buying their company's stock.

    Pauly

  • Report this Comment On February 11, 2010, at 10:05 PM, WoodyDog1400 wrote:

    $289 for 2 cars to listen to Music, Sports, News, Talk, Comedy, etc... remind me again, what is your complaint? Idiot.

  • Report this Comment On February 11, 2010, at 10:47 PM, victrola2231 wrote:

    my 2 cents....i have two cars(german variety and american) one with XM (american, came standard) one with sirius (germans, installed by us)... XM i have had in my last two american cars. I have been paying for XM for the last five years...give it up?? oh hell no. Sirius (in the german car) the last two. I will be paying for them both when they are up for renewal and i will probably upgrade XM with my favs. i tell you what what...as long as i have a choice and the money both of these subscriptions will be renewed ..i got rid of Onstar

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