When Jon Irwin listens to music, he uses his Android smartphone to crank out the tunes. As president of Rhapsody International Inc., Irwin wants his customers to be able to listen to any song, at any time, on any device.
“You should never be without your music,” Irwin says.
That’s the motto with which Irwin leads Rhapsody. To provide that level of music access, he is implementing a two-pronged growth strategy that focuses on direct-consumer marketing and alignment with distribution partners to put Rhapsody’s services in front of more customers and increase its service capabilities.
Rhapsody, a 200-employee music subscription service company, has been in business for more than 10 years. Until 2010, it was a joint venture between Viacom, under MTV Networks, and RealNetworks before being spun out on its own.
“That was kind of a great combination, because we were able to leverage the technology within RealNetworks and the marketing prowess of Viacom and MTV Networks to promote the Rhapsody brand to support the business,” Irwin says. “In 2010, we separated as an independent company, and … since that time, we have more than doubled our customer base. We announced last December that we had gone over 1 million subscribers.”
Those 1 million-plus subscribers pay $10 a month for the company’s primary product, which provides access to more than 16 million songs and spins up Rhapsody’s annual revenue north of $120 million.
To keep subscribers happy and gain new ones through the growth of the business and its capabilities, Irwin has already lined up a few key partnerships. Recent acquisitions include Napster’s U.S., German and U.K. businesses.
“What you see in doing that since the spinout is an entrepreneurial company with great resources, that’s operating in this business at scale and has been able to innovate — not only on mobile products but on distribution models through companies like Metro PCS and Verizon Wireless and is expanding internationally by acquisition with Napster,” he says.
Here’s how Irwin is speeding up the tempo at Rhapsody through a dual-pronged growth strategy.
Support your strategy
Rhapsody was the first on-demand music subscription provider. It saw a market with an opportunity and it capitalized on it.
“Most recently, if you look at the trends within this space and what the business has done, we were so far out in front of this business, nobody else even entered it until the second half of the last decade,” Irwin says. “The business really started to grow beginning in 2009, driven by some of the capabilities of smartphones, mobile devices and network capabilities that really enabled music to be truly portable and make it a fantastic user experience for people to take music with them.”
To expand on the capabilities of smartphones and mobile platforms, Rhapsody has partnered with companies in the wireless arena.
“Last August, we launched a partnership with Metro PCS, which actually took the access model of music to a bundled concept,” he says. “Metro PCS is the largest noncontract wireless carrier in the United States, so customers get unlimited music included with their wireless plan. That’s a very exciting way for us to bring our service to folks.”
Rhapsody also saw an opportunity to buy the Napster business from Best Buy as a way to reach more customers. Best Buy had acquired Napster in 2008 and thought it was a natural fit for the music and connected devices sold in the store and subscription music play.
“What had happened over that period of time was there were challenges in the retail space and Best Buy was working on aligning its strategy,” Irwin says.
Best Buy was soon unable to give Napster the attention it needed. Napster’s product innovation and growth began to suffer because of it.
“We approached Best Buy a little over a year ago and started discussing whether it makes sense for Best Buy to alter its strategy a little bit and not walk away from it, but maintain a stake in the digital music business and be an equity stake in Rhapsody and we would take over those customers and operate the business both in the U.S. and overseas,” Irwin says.
“They decided that made a lot of sense, because it allowed them to focus on their core business. At the same time, they were able to stay in the game with the digital music and subscription music business that’s consistent with a lot of the products they sell.”
Rhapsody acquired Napster last November in the United States, and at the end of March 2012, it also closed on the acquisition of the Napster business in Germany and the United Kingdom.
“That gave us our first international presence, which is an indicator and foreshadowing of future expansion we plan to do over in Europe,” he says. “We not only acquired a great customer base to be No. 1 in the market in Germany, but we have a very capable and seasoned team to continue to build the business, not only in Germany and the U.K. but in the rest of Europe. That was an exciting time for us to support that aspect of the strategy.”
Irwin and Rhapsody plan to keep looking for the opportunities that align with the company’s strategy.
“We are bringing the Rhapsody service to consumers directly and are continuing to innovate on the mobile products and work with distribution partners, both in the United States and internationally,” he says.
“This is to include music in their core offerings and work in partnership with those distribution partners, whether those are cable companies or wireless carriers, to make sure the way the service is being delivered to their subscribers is good for everybody involved. I don’t think there is anybody in the business better than us at doing that.”
Grow through acquisition
The acquisition of Napster played right into Irwin’s growth strategy. Napster helped Rhapsody reach more music listeners and the connection to Best Buy allowed Rhapsody to expand the kinds of devices customers could use to listen to music.
“If you go into a Best Buy store, a lot of the electronics they sell have Rhapsody integrations built-in,” Irwin says. “Overall, getting us in front of those customers is consistent with our mission and our goal of having all the music you want within arm’s reach.”
While Rhapsody acquired Napster less than a year ago, it has been a key factor to the company’s recent success because it was such a good fit. Growth through acquisition is successful if that acquisition supports your objectives and strategy.
“For us, scale and being able to acquire those subscribers and bringing them over to the service was a natural fit,” he says. “In the subscription business, scale is important because the more subscribers we have, we’re leveraging the platform that we built. That consistency with business objectives is No. 1.”
Once you have acquired a business, the No. 2 most important thing to keep in mind is the relentless planning and caring you need to do about how you treat the customers of the acquired company.
“You want to welcome them in a way that isn’t disruptive and, in fact, actually delights them and makes them happy they are over in this new house,” Irwin says.
Rhapsody did specific things in the planning and the migration processes so that what was important to those customers was already in place when they transitioned to Rhapsody’s services.
“They may have created playlists on Napster of their favorite songs,” he says. “They certainly had their own user names and passwords that they had created. They had libraries filled with their favorite artists. Their music collection is very important to them.
“So we made sure that as soon as they signed on and they were moved over to the Rhapsody service, all of those familiar characteristics of their music collection were there. Their playlists were there. You were able to continue to recommend music to them based on their listening history. They didn’t have to go create new accounts. We just made it very smooth for them.”
Attention to those migrating customers is crucial, but so too is a focus on the talent from the acquired company that may be beneficial to your growing business.
“No. 3 is there are a lot of very talented people that you can find in companies that are dealing in the technology space,” he says. “How do you combine the two companies, bring them together, merge them and make sure the talent that you emerge with from the acquisition is even greater than you had when you entered it?
“There were some very good business-minded individuals and people with strong technical skill sets that are happy and productive employees that help to carry that across. You have to tap the talents of the potential acquired company.”
Through the leadership of Irwin and the continued execution of the company’s dual-pronged growth strategy, Rhapsody is positioned well to continue to be a strong player in the subscription music space.
“The trajectory that we’re on now over the past 2½ years is pretty exciting,” Irwin says. “We’re a small start-up company coming back into a very exciting industry with tremendous resources, a customer base that has scaled, technology that has matured, and a brand that MTV Networks helped build. So we’re really set up to run forward and have fun.” <<
How to reach: Rhapsody International Inc., (206) 707-8100 or www.rhapsody.com