Real Scores with Comcast Rhapsody

Looking to steal the limelight from rivals Napster and iTunes, Seattle-based RealNetworks has inked a lucrative deal to market its Rhapsody music service to 5 million Comcast broadband subscribers.

The Rhapsody service, acquired in April, will now be available as a music service option for Comcast high-speed subscribers. More importantly, RealNetworks will kick off a multi-million dollar TV and online advertising campaign with Comcast to launch a major promotion.

“I see this Comcast partnership as the ‘mainstreaming’ of digital music. A year ago, it was strange to talk about online music having a business model. Now, we have the biggest cable provider and the biggest high-speed ISP helping to legitimize the market,” said Sean Ryan, vice president of Music Services at RealNetworks.

Ryan, the former Listen.com CEO who is now head of the company’s RealOne division, told internetnews.com the Comcast deal will launch with a free access promotion to lure new subscribers.

The massive promotion campaign gives Comcast high-speed Internet subscribers and RealOne users seven days of free access to the Rhapsody service, which is regularly priced at $9.95 a month. In addition, new sign-ups get to burn 10 songs to a CD for free instead of the regular 79 cents per download/burn.

While competitors — Roxio’s Napster and Apple’s iTunes — are touting the success of the per-song download model, Ryan insists there is value in the fee-based subscription model.

“Rhapsody users are now playing more than 1 million streams a day and usage continues to grow over 30 percent per month,” Ryan explained, arguing that the broadband providers have opted to co-brand the Rhapsody service because the subscription model offers more compelling value for subscribers. “Subscription services are the natural successor to illegal file sharing networks. You don’t need to pay a buck for every song.”

In addition to Comcast, Rhapsody is also available on Time Warner , Verizon , Charter and Cablevision .

The Comcast deal also comes with a massive television campaign that will run through the Christmas shopping season. It will include 30-second spots blanketed across the company’s cable system.

RealNetworks also has a major offline deal to market Rhapsody in more than 560 Best Buy retail stores nationwide.

PORTABILITY

Unlike Napster and iTunes, Real’s Rhapsody does not offer the ability to transfer downloaded music to digital devices, an absence that analysts say has hurt the company’s efforts to remain competitive.

However, Ryan said the emphasis on portability has focused exclusively on the MP3 player — and unfairly so. “Portability means getting the music around the house and from the PC to the home theatre system…It does not mean only the MP3 player,” he argued.

“The majority of our users, about 80 percent, burn music to the CD. They don’t have MP3 players. The music enthusiast want the ability to burn, not to transfer to an MP3 player so I’d argue that portability is changing,” Ryan said.

He hinted that the company would address the issue when it launches a paid download store later this year. RealNetworks’ music store will offer a la carte downloads in the range of 79 cents to 99 cents per song and Ryan said the issue of portability in the MP3 format will be featured there.

On the pricing front, Ryan predicted the market will eventually settle on a three-tiered model. “When we did our 49 cents per song promotion with Lycos, we got a significant increase in actual purchases. If a user wants to buy and burn a single song, the price really doesn’t matter. But if you want to encourage repeat customers, you have to lower the price,” he explained.

“We’re now selling downloads and burns for 79 cents across the board and it’s a good retention and acquisition tool,” Ryan said.

However, within the next year, the RealNetworks executive is predicting new releases will cost in the range of $1.49 as soon as a single hits the airwaves. A month later, when the album is released, the song will cost in the range of 99 cents and when it goes into back catalog, the price will drop to about 50 cents.

“We’ve seen a trend of liberalization across the board. Two years ago, we were trying to sell a song for $2.99 and we weren’t even allowing burns to CDs. But we’ve seen the music labels concede and the pricing and usage rules have become much more relaxed,” Ryan said.

Separately, RealNetworks on Monday will announce a deal with Intel Corp. to provide software to set-top box manufacturers to power the transfer of music to consumer electronic devices.

* See our special feature: Online Subscription Services on a Roll.