Music Startup Rdio Just Scored $17.5 Million -- Does It Have A Chance?

Niklas ZennstromSkype founder Niklas Zennstrom is the main backer of subscription music service Rdio.

Subscription music service Rdio launched last August and got some early buzz thanks to its founders, Skype founders Niklas Zennstrom and Janus Friis.This morning the company announced a new round of funding from Mangrove Partners, as well as from Zennstrom’s fund Atomico. So what does Rdio expect to do with the $17.5 million investment?

CEO Drew Larner explained that the company hopes to strike more platform partnerships like its recent deal with Sonos, a provider of high-end wireless home audio systems and with wireless carriers. Here, Rdio is playing catch-up with MOG and Rhapsody, which both announced a distribution deal with Verizon in January.

Rdio also has global ambitions, although the complexity of music licensing makes this tough.

So does Rdio have a chance in this crowded space? Larner declined to discuss subscriber numbers or conversion rates from the free trial, but said that the social features will help it stand out from the pack — Rdio doesn’t ask you to choose blindly among its 8 million songs, but rather lets you look at recommendations from friends or other people with similar tastes. Rdio recently tied up with Facebook so users can log in with their Facebook IDs and immediately see if their friends are on the service.

Still, this is an almost impossible business: licensing music is expensive, there are only so many hardcore music fans willing to pay $10 a month for unlimited music listening, and Rdio has a long way to go to catch up with Rhapsody, which recently passed 700,000 subscribers.

Plus, if Spotify ever gets its act together and launches in the U.S., it will be even harder for Rdio to stand out.

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