The acquisition will give Rhapsody Napster's paying subscribers as well as "certain other assets" including Napster's IP portfolio. The companies' announcement did not divulge the current number of Napster subscribers, but it's understood to be at least half of Rhapsody's 700,000 subscribers.

Napster filed for bankruptcy and was ordered to liquidate its assets in 2002. The company's assets and brand changed hands a few times before being purchased by Roxio, which relaunched Napster as a pay subscription music service.

After its relaunch as a pay service, Napster never quite regained the popularity it once had in its P2P days, during which it grew significantly thanks to the ongoing media coverage and controversy Napster garnered at the time.

This latest deal effectively rolls Napster's remaining subscribers and IP portfolio into Rhapsody, which the company hopes will better position it to compete against the likes of Rdio, MOG and Spotify, the European on-demand streaming service that launched in the United States in July.

This new breed of on-demand, all-you-can-stream subscription music service has been growing in popularity in the years since the demise of the original Napster. Several of them, including Spotify and Rhapsody, recently unveiled tight integrations with Facebook for a more social music-listening and sharing experience. There's even evidence suggesting that the rise of pay subscription services has helped decrease illegal piracy of the sort Napster originally enabled.

Slacker is in growth mode. With those 30 million members come almost 400,000 paid premium subscriptions. The company is able to convert about 10% of new mobile free subscribers to paid members, a robust number. Yet, it is important for Slacker to optimize its streaming product as 75% to 85% of listening on the service comes from the free streaming product and not the paid on-demand option. That is where YuMe comes in. With Spotify on the rise and Pandora the dominant service in the sector, Slacker has to make as many moves as it can to gain an edge.

It also does free mobile streaming, which makes it a competitor with Rhapsody, Pandora and Rdio. Music on the Web has been an ultra-competitive market since Napster (which still exists through Best Buy) broke the traditional music industry model in the early 2000s. Yet, Slacker thinks that it can take what made the traditional model so successful and apply it to the new era of music online.

Traditional Model Applied To Digital Era

Slacker's radio channels are curated by a 80 or so "experts" that the company thinks of as traditional disc jockeys. The idea is to have a mix of people's favorite music coupled with new or obscure artists for users to discover. Once a user hears something they might want to buy, the Slacker premium model is there to fulfill that purchase. In this way it is no different from the music industry of the 1950s to 1990s when people listened to the radio and then ran to the record store to buy the newest album.

Yet, free music on the radio has never really existed without ads. Even Pandora, which started sans-advertising, now has ads (or a premium model without) and it has carried the company to a moderately successful IPO. YuMe can help Slacker with this and the two companies are uniquely suited for each other. Both are mobile first and both have services optimized for iOS, Android and Blackberry (Slacker also does Windows Phone 7 and Symbian).

Slacker is only going to get bigger. It has made a deal to be the primary music streaming service for AOL, a move that the company thinks will double its subscription base. The conversion rate to premium memberships will undoubtedly be lower but the more ears Slacker can get, the innovation it can bring to the space and content licenses it can acquire. Will it be enough to separate it from the likes of Mog, Rdio and Rhapsody (and now Spotify) and approach Pandora levels? That remains to be seen.

Until then, here are 5 online music services that either allow you to stream your own music collection or give you access to large libraries of streaming music. Some of these even allow mobile streaming, which is something Lala never offered.

Streaming Music Locker

MP3tunes

If you don't want to be limited to playing the music that the music industry made available for on-demand streaming and you don't mind paying a monthly fee, MP3tunes is also worth a look. Just like Lala, MP3tunes allows you to upload all your music to an online music locker and then stream it. MP3tunes offers a web interface, mobile apps and support for a range of other devices like the Chumby, Wii and Logitech Squeezebox. As we noted earlier this week, MP3tunes now offers up to 10GB of free storage.

Streaming Music Services

MOG

For $5 a month, MOG's users get access to more than 5 million songs on demand. At this year's SXSW festival in Austin, MOG also announced that it will offer mobile apps for the iPhone and Android platforms in the next few months. The service also offers artist-based radio stations that are similar to Pandora's and Slacker's offerings.

Napster and Rhapsody

While the name harks back to the early days of illegal MP3 downloads, Napster is now a pretty standard MP3 store that also allows you to stream any of the 9 million songs in its library. For $7 per month, you can stream all the songs in Napster's library and download an additional 5 DRM-free MP3 files (more if you sign up for an annual plan).

Rhapsody also offers 9 million songs for on-demand streaming ($10/month), but unlike Napster, it also offers mobile apps (iPhone and Android).

Do-It-Yourself

Sockso

You can, of course, also use your own computer at home to stream music over the Internet. Simplify Music used to be our favorite service for doing this, but the company shut down last month.

A good alternative to Simplify Media is Sockso, an open source program, that can be installed on any Windows, OSX and Linux machine with very little effort (though you will need to set up the port forwarding on your router). The application gives you total control over your music experience and you can even share your music with anybody else on the Internet if you feel like doing so (and, of course, you have the legal rights to do so).

For a simplified version of this, also have a look at Opera Unite, which offers a built-in streaming music server for all Opera users.

Features

Rhapsody has all the features you would probably want from a streaming music app. Browsing by genres, charts, or simply searching for artists and specific tracks is easy and fast. Once you have found something you like, you can also easily add it to your 'library' so that you can find it quickly at a later point. Rhapsody also offers radio stations based on genres or artists, similar to what the Slacker Radio and Pandora apps offer on the iPhone.

One thing we especially like about the app is how easy it is to manage and create playlists. While this feature is somewhat hidden - you have to keep pressing the name of a song or album for a second or two for the right menu to pop up - it does give you the ability to create a library of songs you like and to manage playlists.

We are not quite sure at what rate Rhapsody is actually streaming this music to the iPhone, but at least over Wi-Fi and the AT&T 3G network, the sound quality is quite good.

Rhapsody vs. Spotify

In the US, Rhapsody is currently the only game in town when it comes to on-demand music streaming. Unlike Spotify, Rhapsody doesn't offer an offline mode, thanks to the arcane licensing restrictions the music industry still favors, and is only available in a select number of markets in Europe at this point. Maybe later versions will feature this ability - especially given that Apple has now allowed the Spotify app into the App Store.

Once Spotify launches in the US App Store, however, Rhapsody will come under a lot of pressure, especially if Rhapsody doesn't offer offline storage at that point. Currently, Rhapsody does offer more songs (8 million vs. 4.5 million) and the prices are similar (€9.99 vs. $15).

Free Trial

Signing up for the free 7-day trial is easy and doesn't require a credit card, so if you are on the fence about trying Rhapsody out, just install the app and follow the instructions from the home screen. Apple just pointed out that it doesn't believe in music subscriptions during its annual iPod event yesterday, but depending on your listening habits, a $14.99 subscription per month might actually turn out to be a pretty good deal.

At about $160 a year, Datz' plan is comparable to most subscription services, though the high upfront cost and limited selection might make quite a few potential subscribers think twice about the value of this new service.

Mark Mulligan from Jupiter Research argues that Datz is a big deal - not because it might become a market leader itself, but because it has laid a licensing groundwork for the rest of the industry.

Indeed, it will be interesting to see if other services will offer similar all-you-can-eat plans in the future and if the music industry as a whole will be willing to go along with this.

At the end of the day, it is good to see yet another new business model for music services and that at least some of the labels are willing to experiment with new licensing models as well.

In this post we feature some of the highlights from the show, which included many interesting factoids about Imeem, Yahoo Music and Rhapsody. But more importantly there was a lot of fascinating discussion of online music trends and where the music industry is headed.

The show started with a discussion about the killer feature set for online music, based on a post Marshall wrote recently. Marshall noted that the user experience in online music is not as good as it should be in streaming music websites.

In reply Lucas said that the listening experience has changed since around 2000 - e.g. people who follow mp3 blogs enjoy the personalities and the "constant sense of flow" of new music. In terms of streaming music, he said that there is a close connection between the songs and the community - it isn't intended to be decoupled. He said an ideal listening experience now is one that mixes music with fun, the social aspects.

Dalton said that Imeem started out as a social network, then the music came later - not the other way round. They slowly added music features, as people asked for them; and that has steered the product. He said that online music shouldn't be about consumption, but online community and self-expression. He thinks sites that are primarily community focused, rather than just listening to lots of music, are the ones that have succeeded most in online music. He also said technical advantages are key - he pointed to Imeem's acquisition of Snocap and its upload technology.

Sean asked Dalton a bit more about how Imeem got into music. Dalton replied that originally Imeem was meant to be a social network where people could express their tastes in media, whether that be video, music, etc. But they have turned into a music specific site, due to how their market evolved.

Rob from RealNetworks talked about how Rhapsody has had success in web services. He said they're continuing to build out their APIs across a range of devices. He spoke about their partnership with iLike. He says music discovery, social networking and music creativity are important features these days. The way they do things is work on the backend and partner with lots of companies. One point that resonated with us was that online music services should work more together, in a federated way. e.g. you can move personalization data around and get recommendations across the likes of last.fm, Imeem, Rhapsody etc. He mentioned OAuth and OpenID as some of the standards being used to do this.

Developer Platforms

Lucas segued off Rob's point about standards, using that to point out a key difference between Imeem and Rhapsody. He said that Rhapsody is a 'pure play', it's for obtaining music. Whereas Imeem is a social network that uses provisioning to complement its strategy. So which of these two things will be better business models?

Rob's response was that Rhapsody has a developer program which it is using to expand its reach. He said that Imeem focuses on developers too, but they focus more on web developers whereas Rhapsody targets hardware developers too. Dalton agreed that they focus on web developers.

Marshall asked Dalton for an update about the Imeem developer platform and specifically how it compares to the "wide open" Seeqpod API, which has been leveraged a lot. Dalton replied that there are 2 ways the Imeem platform is encompassed - the 'off website' version and the 'on Imeem' one. The widget and embeds is being integrated into eg Slide's Top Friends, and Apture (a blog plug-in that features an Imeem player). In terms of the 'on Imeem' API, that hasn't been shipped yet. That will be similar to Facebook's platform, so that developers can build new media experiences inside Imeem.

Business Models for Platforms

Sean asked a question from the podcast audience, about what Imeem's business model is for their platform. Dalton replied that the vision is to make it mostly ad-supported. They also want to do rev share. They still have to complete building out the technology for ad serving for online music. He doesn't think the subscription model would work for their audience.

Lucas said there is a lot of skepticism in the music industry (labels, artists etc) about ad-supported revenue.

Marshall mentioned that recorded music is just a loss leader, and monetization can be made with tours, merchandise etc. Rob replied that for artists there is a lot of money in that. So he said there are really good businesses being built off the online music platforms - eg recommednation engines like last.fm, connecting artists to their fan base (e.g. iLike), Ian Rogers' new company topspinmedia.

Dalton said that at Imeem they're trying to change the relationship people have with music, focusing not on monetizing consumption, but monetising self-expression and attention in music.

Imeem screenshot

Lucas said that the value in online music isn't in the download, but in all the things around it - socialising, shows, etc. So the business is in supporting the user to do all those things.

DRM & Interoperability

Marshall brought up the topic of DRM. He said that there seemed to be 3 different points in the spectrum of DRM in online music:

a) Rhapsody embraces DRM the most and the requirement that subscription be ongoing;

b) Imeem playing in the middle with Google Open Social integration;

c) Yahoo focuses on open standards

So Marshall asked how long will big players be able to use their large audience to compete with small more open players?

Lucas said that he no longer speaks for Yahoo, but they've changed over the last six months to "embrace openness and become a connector". Yahoo Music eschewed its own subscription product and made a deal with Rhapsody. He said that interoperability with Imeem would probably also be a popular move within Yahoo. He said though that there is immaturity of current open products, specifically mentioning OpenSocial. Secondly, companies like Yahoo need to figure out how to make money from the open strategy. He said that Rhapsody's strategy is very open, but the big question is can that be extended to record labels and artists as well as users.

Rob didn't agree with the characterisation that Rhapsody was pro-DRM. He noted that at the end of June they launched a DRM-free music store (ReadWriteWeb coverage here). He also said that they're big supporters of the ad model. He also said that partnerships are an important part of their strategy, e.g. powering Yahoo Music and iLike (which gets them into Facebook). He told us that some demographics accept ads, but they've had issues eg with the Facebook crowd. So he said a blended approach is what they're pursuing - part ads, part track sales, part subscriptions, part discovery/buying track for your phone, etc. He said that music is a $10b market in the US, but so far only $1b of that is online.

Rhapsody DRM-free store

Legal Battles With Record Labels

At this point I asked a question about the legal issues with online music, specifically pointing out that there is a 'have' and 'have not' situation in online music currently - with larger sites like Imeem, Yahoo, Rhapsody being able to make partnerships with record labels and avoid the legal issues plaguing the likes of Pandora, Muxtape and other small startups.

Lucas said there are two markets emerging: large scale, partnerships with labels, big traffic but low profit margins (Yahoo, Imeem, et al); the second market is small scale, uses media like artist sites, works in the "grey area" in terms of legal issues, has smaller traffic but higher margins. He points to Hype Machine as an example of the latter, which isn't paying anything [to record labels]. He said these two margins are emerging in parallel. He said that Muxtape was a red herring, as it was trying to become a big service, i.e. get too big to fail and so cut a deal [with labels].

Muxtape woes with the RIAA

Lucas said in a couple of years the wall between the large providers and small ones will start to go away, as music becomes more "webby" and interoperable.

Dalton said that small companies need to steer clear of the major record labels in order to survive.

Rob said that the backend, platform approach will make this easier, as small companies can use the big platforms provided by Rhapsody and others. So that is one way to avoid the legal hassles of music acquisition from music labels. Dalton said that he agrees, noting that at Imeem they try to "abstract away all the complexity" around licensing and streaming and hosting. He also said they acquired Snocap partly to get access to their registry of music from the major record labels as well UGC (user generated content) music. This enables them to build a platform that scales from UGC music to major record label music. So he says there should be no reason for startups not to use a platform in a couple of years.

Marshall brought up the issue of international. Rob said it's very tough, they have enough problems dealing with US laws around rights to use music. He said Pandora has had lots of issues with international laws. He said it probably will be never fully global, so it will stay in "the grey area" for many countries.

Who Will be the Leading Online Music Services 1 Year From Now?

To wrap up the podcast, Sean asked everyone about the current poll we're running on RWW (see below). last.fm and Pandora are still the most popular apps with our readers, so Sean asked which apps will be the leaders a year from now?

Rob said that he hopes Pandora is still around and the statutory radio issues get worked out across the industry. He said there will probably be a number of new contenders, and he hopes there will be much more cross-service users (i.e. the ability to use more than one service).

Lucas said that Hype Machine has the opportunity to get pretty big.

Dalton said that the line between social networking services and music services is blurring, so he thinks apps that aren't just about music may become most influential - e.g. iPhone apps.

Marshall said he has high hopes for Hype Machine (our initial review and update) and also thinks Songbird (our review) has potential, with so many developers and an open framework.

I said that music discovery is key for me, finding new music. The likes of last.fm, Pandora, Imeem, Hype Machine are doing this for me now, but given Imeem's rapid growth recently there will probably be another 1-2 services that emerge over the next year that take discovery to the next level.

Hype Machine, beloved by a few in the panel

Listen

You can listen to the entire show here (select Episode 6):

Note about the podcast: We experienced technical issues with our podcast hosts Talkshoe during the recording, which affected our live listeners. Many people either couldn't login to the call or were thrown off midway through (including the host Sean!). We sincerely apologize for this, and we are looking into an alternative solution for upcoming shows. We're pleased to say though that the archived recording is 100% intact!

Vote

Don't forget also to vote in our current poll: What are your favorite online music streaming services?

Image: She sings, she sings by gwen