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Rhapsody cuts staff as new investor arrives

Rhapsody digital music service website.
Source: Rhapsody.com
Rhapsody digital music service website.

Rhapsody, a digital music service that pioneered the subscription model now dominated by Spotify, has laid off its president, Jon Irwin, along with 15 percent of its staff, as the service struggles to remain competitive in a crowded market.

Rhapsody International, the service's parent company, announced the changes on Monday in connection with the arrival of a new investor, Columbus Nova Technology Partners, which has become a significant shareholder in Rhapsody in exchange for an undisclosed investment. Two of the firm's principals, Jason Epstein and Andrew Intrater, have joined Rhapsody's board.

The news of the layoffs was first reported by The Verge, a technology news Web site.

(Read more: Microsoft launches Xbox music on Web for free)

Introduced in 2001, Rhapsody was one of the first services to sell monthly subscriptions for access to huge libraries of music for streaming online. But with the arrival and rapid growth of Spotify — which has a paid tier as well as a free version supported by advertising — Rhapsody has fallen behind. The company says it has more than one million subscribers, although it has not announced specific numbers since it bought Napster, a competing service, in late 2011.

More from the New York Times:

The layoffs will affect only staff in the United States, and about 200 employees will remain with the company worldwide, a spokeswoman said. Mr. Irwin will continue as an adviser. In its announcement, Rhapsody said it wanted to "accelerate its efforts in Europe and emerging markets."

"Rhapsody International is poised for tremendous growth," Mr. Epstein said in a statement. "We've recently launched the Napster music streaming service in 15 additional countries in Europe, rolled out a partnership with MTV in conjunction with German wireless carrier ePlus and have a strong pipeline of product innovations and global partnerships in place."

Rhapsody is privately owned, but some of its finances are disclosed through the public reporting of Real Networks, which owns 45 percent of the service. In its most recent accounting, Real Networks said that Rhapsody had a total of $68.6 million in revenue for the first half of 2013, down 6 percent from the same period the year before; its net loss also grew to $9.2 million, from $5.6 million in 2012.

(Read more: Online music: Recording industry embraces streaming)

By contrast, Spotify has 24 million active users around the world, 6 million of whom pay, and it reported about $578 million in revenue last year. But net losses are common at even the most successful digital music services. Spotify, which says it is focused on growth rather than profitability, lost $78 million last year.

—By New York Times' Ben Sisario

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