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Will Rara.com be bigger than iTunes?

by LLB Reporter
7th Mar 12 9:45 pm

Taking on iTunes and Spotify seems like Mission Impossible. But director Tim Hadley thinks his new music dotcom Rara.com can find a lucrative niche

Rara.com looks at first glance like a dead duck.

The Hammersmith-based start-up launched in December, with the not very original plan of delivering music over the web to subscribers. This means Rara will be taking on Spotify and iTunes – two of the biggest, best funded and well-established giants of the net, not to mention a plethora of other online music services such as Deezer and Rhapsody, free platforms such as YouTube, and the dark underworld of piracy sites and torrent services.

A normal start-up would be pretty foolish to take on these incumbents. But Rara isn’t quite your normal naive dotcom.

The executive team are hardcore music industry veterans.

They come from Omnifone, a Chiswick-based music licensing and software firm which works with the music majors to create white label music products for the likes of Vodafone, RIM, Sony and HP. The BlackBerry Messenger Music service is an Omnifone product. As is HP’s MusicStation.

Rara is a spin-off from Omnifone, and brings with it the founder and chairman, Rob Lewis. He made his name as the entrepreneur behind software developer Cromwell Media and tech-news portal Silicon.com. With Omnifone he has been licensing music online since 2003, five years before Spotify.

The connection means Rara had a bulging music inventory from day one. Lady Gaga, Elvis, The Lovin’ Spoonful, Radiohead, Justin Bieber… all present and correct. Only internet-averse artists such as Adele, and Led Zeppelin are missing.

Still, it’s a tough pitch – finding subscribers in a saturated industry. What on earth makes the founders of Rara think there is even a sliver of pie left to gobble up?

Rara’s director Tim Hadley says: “At the moment less than 20 per cent of internet users pay for music on the internet. Our own research shows that 60 per cent of users have yet to engage with digital music in any way. They haven’t subscribed to any service and are not pirating music – nothing.”

In the UK alone this equates to tens of millions of people who quite probably have never even heard of Spotify or iTunes. They certainly don’t know how to torrent an MP3 file through The Pirate Bay. They are the lumpen proletariat of the internet, who are not tech savvy and so often overlooked.

Hadley says these simple folk will soon find they have to start engaging with the web. “A decade ago you’d have had quite a choice of places on the high street to buy music. Now there are literally only one or two chains left. Realistically the only option is to move the internet.”

What makes Hadley think his service can sign up these technophobes? His answer is that Rara’s interface is designed with basic users in mind. “When you look at the current interfaces of Spotify and iTunes they are basically spreadsheets. It is the job of the user to categorise and manage the music. Our user interface gets away from long lists of information, away from the spreadsheet.”

Rara is idiot-proof. There is nothing to download or install. It is just a website. The music is streamed, so there’s no local hosting, unlike Spotify or iTunes. Users either type an artist’s name into a search box to pull up an album or song, or click on one of the many playlists.

The playlist experience is a vital part of the strategy, says Hadley.

“The mass market will want more of a radio style experience. If they are in a particular mood they can click and it will just play. We have a team of content editors who curate the service.”

Rara has set out from day one to be a global service. It has launched in 20 countries, including most of Europe, Australasia and the US, beating Spotify which is available in only 12.

“There are 900m internet users in the markets we are looking to go into. Today the IFPI reckon there are 13 million music subscribers; that rose from 8.2 million at the end of 2011. The potential is huge.”

How will Rara make money?

The model is entirely subscriber-based. No ads. No free trials. The fee is 99p for the first three months, then a fiver a month, or ten quid if you want to listen to music on your mobile phone too. Hadley says the pricing model is key differentiator: “Discounted introductory model has been proven to work in publishing and pay TV” he says enthusiastically.

A three-month discount is a differentiator, but a weak one. Spotify already has a completely free option, limited only by a five-plays-per-song cap. Deezer has a free 30-day trial period. Charging a quid allows Rara to break the psychological “paying for stuff” barrier, but in a world where Apple alone have flogged 25bn apps on iTunes, it’s not quite the big deal it once was.

The real question is how many subscribers Rara needs to stay alive. Hadley refuses flat out to discuss this number. But my hunch is that it could be pretty darned low.

Rara has 20 employees. It doesn’t need a big back end office, since all the licensing work and technical stuff is done by Omnifone, which already had the most of it sorted out a long time ago. So Rara might only have rent and salary running costs of £1m a year.

Viability thus comes down to the deal with the record majors. These contracts are notoriously confidential. Rumour has it that the majors demand a combination of revenue share, equity stakes and minimum payments, calibrated to screw the maximum amount of cash out of the service partner. For this reason it has been alleged that Spotify may never make money.

According to Companies House documents Rara has avoided any nasty equity deals with the majors. But what are its licensing deals? That we don’t know, and the directors are no doubt sworn to secrecy on pain of death.

Marketing Rara won’t be cheap. Targeting a global audience of not-very tech aware users will be a nightmare. Half of Spotify’s paying customers are under the age of 30, and they are likely to act as consultant to their parents and grandparents who want to listen to music. They will recommend and install what they use – Spotify. Worse, when Rara’s paying customers get used to the idea of listening to music online they will want the best service possible.

Spotify’s interface is far more flexible than Rara’s. It offers a range of bitrate qualities and integration with HiFi streaming systems like Sonos and Squeezebox. Playlists can be shared with a single click. There will be a natural tendency to migrate upwards to Spotify.

And the really computer illiterate punters will continue to use YouTube, which is free.

Hadley says the team at Rara did an awful lot of research before launch. He’s convinced the price model and no-frills site will attract a significant slice of the half a billion or more internet users who have yet to decide where to buy music.

If he’s right  the upside could be huge. Spotify, with 2.5m paying subscribers, is valued at around $1bn. If he’s wrong, Rara may
only blow a few million for its investors. There are a hell of a lot of dotcoms in London with worse prognoses than that.

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