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Napster takes on iPod with portable service, ad campaign

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By LC Angell

Contributing Editor
Published: Thursday, February 3, 2005
News Categories: iPod

Napster today introduced a portable version of its digital music subscription service, backed by a $30 million print and broadcast ad campaign that takes aim at Apple’s iPod and iTunes Music Store.  Napster’s promotion will include a Super Bowl ad, called “Do the Math,” that argues it would cost up to $10,000 to fill up an iPod, while it would only be $14.95 a month to load up an alternative player through the new Napster To Go service. The ad campaign also includes strategic alliances with companies that make rival players to the iPod—Creative, Dell and iRiver.

“Napster To Go provides infinitely greater value and is much more exciting than the iTunes pay-per-download model,” said Napster CEO Chris Gorog.

Apple CEO Steve Jobs said he does not believe that there is a significant number of music fans willing to pay $180 a year to subscribe to a collection of tracks that they do not permanently own. “When you rent stuff, in the end you’re left with nothing,” Jobs said.

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Comments

21

if you listen to music that you want, you can still buy the song for 99 cents.  Just that the subscription model offers more option.

Posted by VertigoLimit on February 3, 2005 at 11:59 AM (PDT)

22

Please, I give it a month for all the hackers to come out with ways to exploit the cheapness and release plug-ins/hacks that let you make seperate copies of the audio into .mp3 format and availabe for the masses. Remember the group that got access to the audio tracks itunes uses for streaming and managed free fast downloads for all that wanted it?

Posted by andres in Miami on February 3, 2005 at 1:06 PM (PDT)

23

If you buy a CD and then break it… “nobody cares” either. I’d still rather have my music play forever—on CD, or from iTMS (backed up to DRM-free CD if there’s ever a need)—than “rent” from Napster!

Renting/subscription is a fine option to have, though—even if not many want it, it doesn’t hurt to have the option.

If ENOUGH people wanted it (the market for digital music would have to grow a lot first) then I expect Apple would offer such a thing.

Posted by Nagromme on February 3, 2005 at 1:08 PM (PDT)

24

Would people please figure out that nobody cares if your computer crases and you lose your files.  So, one would think to back their files up.  I don’t see why it is so hard to burn them to DVD’s, buy a slave drive, or an external hard drive to back up all music files.  How hard is this?  You can get an 120GB external drive for 100 bucks on ebay.

Everyone should do this!!!

Posted by PoconoAli in East Coast on February 3, 2005 at 2:09 PM (PDT)

25

Napster has 270K “paying subscribers”. At $10 a month that’s a fair chunk of change annually. Considering that Rhapsody has ~700K monthly subscribers (dunnoe how many are paying) it will be interesting so if indeed Apple does a 180 and jumps on the subs model bandwagon…

Personally I am not interested in DRM’d music at all, so I avoid both FairPlay and WMA and all the variants. But my wife was at some conference and got a free 2-week trial to Napster. And she *loved* it. It had basically all the music she wanted (lots of 80s crap), and she made up playlists and did all the collaborative filtering and playlist exchanges and all. She liked the fact that she could change it every couple of days and play some completely new lists.

I was impressed with the interface - it’s pretty slick as these things go. I did notice that a high proportion of the songs are marked “not for download” so I guess they have broadcast rights only for those.

But anyway, now that her trial has ended she’s *strongly* considering paying for the thing herself. And she doesn’t even have a Napster-compatible mp3 player. And we have a server with close on 1TB of music for her to choose from. Napster just seems to have offered her a pleasing convenience at a price that seems to suit her.

I was a bit taken aback. DRM in my own house! Whatever next?

Posted by Demosthenes on February 3, 2005 at 2:49 PM (PDT)

26

Man, the bigwig record companies are going to make a fortune off this subscription model. They are getting people to give them money every month forever, and in the end they will own nothing.

Fishes,
narco.

Posted by narco in Burbank on February 3, 2005 at 8:18 PM (PDT)

27

Yeah, narco, and how much of *that* money do you think will go to the artists?  People wanna complain about iTunes sales giving them too small a cut—they ain’t seen nothing yet.

Posted by SPThom on February 4, 2005 at 12:51 AM (PDT)

28

@b6662966

“argg, tough times are ahead for the ipod.”

How many times have we heard that one?

Posted by Quoth_the_Raven in Herndon, VA on February 4, 2005 at 7:37 AM (PDT)

29

I don’t think subscriptions would be successful because I don’t think people have enough bandwidth to make it work successfully.

Downloading 12 songs off of iTMS takes me 10 minutes off a broadband cable connection.  Re-downloading songs from Napster or whomever monthly simply would become a real annoyance real fast.

Maybe I’d consider it in 15 years when everyone has faster network connection speeds, but today I just don’t see it working out too well.

Posted by John97 in Victoria, BC on February 4, 2005 at 10:51 AM (PDT)

30

Lets see here, I probably want to “own” my music for as long as I live.  I’m 33 and lets assume for the fun of it that I make it to the ripe old age of 75.  12 months a year…..$7534.48… That is if I want 20 songs or 2,000 songs.  Hum?  I don’t think this is a very good deal.  That figure doesn’t take into consideration price increases.  Oh, and here is one for you, what if the service fails in a year.  I spent money to “rent” those songs for a year and now I get to go pay someone else to be able to listen to them.  I will stick to 99 cents a track and the knowledge and confidence that I only need to pay once and that if for some reason not yet apparent to me that iTunes fails, I can still listen to the songs at that time.  I would love the flexibility of being able to re-download songs from iTunes but I’m responsible and back-up my music and so should you.  Tough times ahead for the iPod…what are you talking about?  What business journal did you read that in?  I suspect a certain number of folks will begin using this format but there are a million good reasons why iPod users like myself will never use it.  Not the least of which is that Napster won’t work with the iPod.  I love that argument by the way.  Microsoft and its flock of sheep are doing the same thing that Apple is.  Its just a different file format. 

Posted by lsw999 in US on February 4, 2005 at 12:27 PM (PDT)

31

You can do the math:

Plays4Sure player 20 GB - $249
One Year sub - $179 at that and EVERY YEAR to keep your music*

For that price, you can buy @17 iTMS full CD’s or 179 individual tracks whenever you want to.

* You have to remember to renew or it’s all gone.

If nothing else, what about playlist creation - people are willing to make playlists from their own music but who is going to spend hundreds of hours culling through hundreds of thousands of tracks to create a playlist for tracks you don’t even own that could be gone at the end of the month? And if like those songs well enough to spend all that time, wouldn’t you just buy them outright?

I could see this service appealing to people who are going to record the streams to make mp3’s but they’ll quit after a month of recording a couple hundred CD’s and then waiting for another for another promo - buy a month, get a month free promo launched by Napster in a few months afterwards.

This is like buying a destructable DVD that costs just a few bucks less than a regular DVD ... if this were $3 bucks or even $5 bucks a month, I could see people doing it but at $15? No way. This only appeals to the savviest and tech gearhead and they can stream (and record) thousands of internet stations, go to music blogs, go to ptop or just troll the net for free music - so who’s left?

Savvy tech people who love music but on a limited income and not willing to listen/download illegal tracks ... doesn’t it seem those 270,000 are already at Napster (their current monthly customer count?)

Posted by jbelkin on February 4, 2005 at 12:30 PM (PDT)

32

I only need to pay once

How many years do you think your iPod will last? If you are paying to replace it every few years then you need to figure that cost into the equation. Much as it would like to make lots of service revenue from iTMS (and right now and for the forseeable future it makes chickenfeed), Apple is a hardware company. It makes its money from its customers rebuying Apple hardware on average every three years or so. And it has one of the hardware lock-in strategies in the business.

Of course, for portability the Napster people are paying a sub *and* a hardware charge. But they have more choice about which players to buy because of cross-platform compatability. And just wait till Napster runs on mobiles, probably Verizon…

Even if Napster only manages to convince a one hundred thousand more people to sign up (which is certainly doable considering that satellite radio, with a similar model and until recently much less portable has managed better), and you add in its existing 270K subscribers, then its annual revenue from subs is ~ $50m annually. Just for the US alone. With the broadcast royalties its using, it probably gets to keep around 30% of that take, for a net of $15m.

Now, if you figure that Apple is now selling ~200m iTMS licensed downloads annually, and it clears 5 cents per track (and that estimate is on the high side) then its annual take from iTMS runs to around $10m.

I also found out that Napster’s quarter-on-quarter growth rate has been 50% for the last 2 Qs. That would leave it on target to net up to ~$25m this year.

So while you may dismiss the subs model, it’s *very* lucrative. And it’s a perfect recurring business that mobile network operators and cable tv people understand very well. The *entire* legal download market (~80% iTMS!) is still only 5% of the entire market for mobile phone ringtones. Bet your bottom dollar the phone companies are racing to add music subs to their product mix and add it to their incremental billing apparatus.

Remember a year ago Steve Jobs told you flash players were evil? Don’t be surprised if in a year he’s telling the faithful that *Apple’s* subs model is your new best friend.

Posted by Demosthenes on February 4, 2005 at 1:55 PM (PDT)

33

could someone please explain to me if I pay a rent worths of music downlaod 10,000 songs, transfer them all to my mp3. Then I cancel my subscription, the songs on my computer will stop working but won’t the songs on my mp3 player still work? Since the mp3 player is not connected to the internet and if i dont connect it to my computer, wouldnt I still be able to listen to those songs?

Better yet what you pay for one month, downlaod thousands of songs, disconnect your computer from the internet, and then canceled your subscription. How would napster be able to take away your songs?

Posted by ihaveanipod on February 4, 2005 at 3:55 PM (PDT)

34

ihaveanipod:

The MP3 files are made so that they cease working after a month—so in other words you have to subscribe to the service monthly, and you have to connect your player to the service once every 30 days—or else the files “expire” and can no longer be played. 

Napster does not work with ipod anyway, you’d have to buy a new MP3 player to use the system.

Posted by STUMPY2 in LAYTON on February 4, 2005 at 5:46 PM (PDT)

35

Demosthenes-

iTMS sells about 1.25 million songs a day - that’s over 450 million a year - so at your 5¢ a track that will be a fair amount over $20m a year.

Regarding the subscription method, if I could rent the number of songs I would need to fill my iPod, how could I listen to them all?  My 14 GB worth of music (all legally purchased) is already too much - plus I’d have to shell out to renew it every month.  Why not just buy the songs or albums I want so I can have them forever?

Posted by crunkmaster on February 4, 2005 at 10:10 PM (PDT)

36

theplate,

Good come back! Educate those Red-staters!

“Mele: No, those are George W. Bush mathematics. Al Gore is on Apple’s board of directors.”

Posted by drjaycs in Los Angeles on February 5, 2005 at 9:14 AM (PDT)

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