Our take...
The business of online rental subscription services paid for by the consumer is declining in the US. Consequently the move towards DRM free is an important step for the company as it transitions away from its core business towards a diversified model that includes both ad funded and retail models as well as offering services to mobile phone users

In providing the catalogue DRM free, Rhapsody is ensuring that its service is compatible with a broader range of music players, including Apple's iPod. There is growing evidence that this is necessary condition for service adoption beyond iTunes – both Amazon and eMusic succeeded in carving niches for themselves based on DRM free services (though, unlike Rhapsody, they also compete with Apple on price). However, going DRM free is no longer much of a differentiator for Rhapsody's store; Amazon, Walmart, Napster and, to a lesser extent, Apple have all adopted DRM free formats. As such the Real and MTV JV is simply coming into line with other services which is unlikely to foster adoption.

More significant is the inclusion of the Rhapsody store into the company's embedded music player which brings free streaming and retail to a range of popular partner sites. Free streaming services have proved popular and there is some evidence that they can help to promote sales. CBS subsidiary Last.fm claimed a 119 per cent uplift in sales from its Amazon affiliate links shortly after that launch of its free streaming service. For Rhapsody, integrating the player and streaming service in combination may allow the company to benefit from the same effect. Moreover, adopting a disaggregated approach to the player/store – allowing it to be embedded in other music websites – may well help boost adoption as it facilitates impulse purchasing and discovery.

In terms of mobile, sideloading avoids the data transfer charges that accompany OTA downloads and is a prominent trend seen in the current market. However, the result is that the service should be seen as the context of other online rental services that allow content to be moved to the device, a proposition that is falling out of favour with consumers who are increasingly unwilling to pay for such services. Music subscription services bundled with handsets, only serve to increase this expectation of 'free' music and are expected be launched this year by Nokia and Omnifone. If Verizon chose to bundle the Rhapsody subscription into a voice tariff, in the same way as Vodafone in the UK has with MusicStation, it could prove more advantageous for the music service uptake. It seems unlikely that users will pay additional fees for a sideloading music service.