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Understanding Royalty-Bearing Companies #2: Rhapsody

Rhapsody, the music subscription service launched in 2001 as a joint venture between MTV Networks and RealNetworks, is one of the leading online music services avaible today. It began as a streaming audio engine, with just a handful of independent labels onboard. In its current, most successful iteration, Rhapsody allows its 750,000 users to stream and download music onto Internet-connected computers or Rhapsody-enabled mobile devices and mp3 players.  In so doing, it is quickly becoming a meaningful new revenue stream for songwriters and artists of all levels.

According to the last available data, Rhapsody earned $43.9 million in yearly revenue in 2009. An estimated 60 percent of that figure was paid out in licensing fees. In other words, most of Rhapsody’s income goes directly towards paying songwriters and artists. The company estimates that it has about half of the market share of online music subscribers, and hopes to expand its reach into mobile territory by offering iPhone and iPod Touch subscription downloads in the near future, which means more opportunities for earning royalties.

In case you’re not familiar, it works like this: Rhapsody is a 2-tiered subscription service that allows unlimited streaming and tethered downloads (that is, users can only access the content while their subscriptions are active) onto computers, and mobile devices and mp3 players that have the Rhapsody software. Rhapsody also has an mp3 store for permanent mp3 downloads, which range in price from $0.69 to $1.29 per song.

In total, Rhapsody’s catalog includes over nine million songs, spanning across all genres. Rhapsody pays mechanical royalties every time a subscriber plays a song. For streaming and tethered downloads, copyright holders are paid a fraction of the company’s monthly revenue, based on how many times their songs were played. This number may vary from period to period, as it is dependent on Rhapsody’s income and the number of times subscribers play a song. For permanent downloads, which can be purchased by both subscribers and non-subscribers, songwriters and artists are paid at a statutory rate more or less like they would be through the sale of a song on iTunes.

However, it should be noted that Rhapsody allows anyone with a credit card to register for a free, 14-day trial subscription. Listeners using a trial subscription can access unlimited content for during that 14-day period, but artists do not receive any payments for music streamed or tethered downloads accessed by trial subscribers. It is billed by Rhapsody as promotional usage.

Rhapsody recently entered into a relationship with RightsFlow, the leading licensing and royalty service provider, to offer full mechanical licensing and administration for Rhapsody’s digital music catalog.  “This partnership further enhances our ability to efficiently clear the mechanical rights for our catalog, ensuring that the complete spectrum of songwriters and publishers are properly licensed and paid for the use of their compositions on the Rhapsody service,” says Adam Parness, Rhapsody’s Director of Music Licensing.

Songtrust works closely with RightsFlow and other licensing bodies to insure that our clients are paid for the use of their work on the service. For independent songwriters and artists, the easiest way to make sure your music is included in Rhapsody’s catalog is to sign up with a digital distribution service like TuneCore. In an upcoming post, we’ll be addressing TuneCore in more detail. But, in the meantime, visit TuneCore for more information about how it can get your music onto Rhapsody and other online music services.

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