Napster: Buy MP3s, get free streams
Now this is truly "PlaysforSure." Subscription music service Napster has come up with a far cheaper alternative to its $15-a-month plan, which allowed people to download an unlimited number of DRM-wrapped songs that worked only on devices equipped with Microsoft's "Certified for Windows Vista" technology (better known as PlaysforSure, although that was a misnomer). Starting today, consumers can sign up to hear unlimited songs on demand from Napster's online jukebox for $5 a month. The price also includes five MP3s, so the streams are effectively free (or even better, considering that new hits often sell for $1.29 each at iTunes or Amazon). There are no "tethered downloads" and no fears about paying for songs that might not work on your favorite player.
This is close to a breakthrough offer. Microsoft tried something similar when it altered its $15-a-month Zune Pass service in November, throwing in 10 MP3s to go along with unlimited streams and tethered downloads. But $15 is far more than the average consumers spends on recorded music each month, and the tethered downloads work only on a Zune. Napster's new price is so low, it could change the way people evaluate a subscription-music service. Instead of wondering whether it's worth paying a monthly fee for something with no residual value (i.e., the tethered downloads and the online jukebox), would-be subscribers simply have to decide whether it's worth buying five MP3s a month from Napster in exchange for access to that jukebox. To make the decision simpler, the company offers three-, six- and 12-month plans (for $15, $30 and $60, respectively) that give subscribers more flexibility over when they use their MP3 credits.
I'm willing to pay for access to a fully stocked online jukebox; that's why I've been subscribing to Rhapsody for lo these many years. But most people aren't. (See below for the numbers.) That's why Napster and its music-industry partners have to come up with a dramatically different value proposition if they're going to attract a mass following. The new Napster offer is far more compelling than the old one, but there are still some non-trivial problems....
First, the Achilles heel for Napster remains its incompability with iPods, the most popular portable device on the planet by a very wide margin. Unlike its tethered downloads, Napster's MP3s will work on Apple's players, or any other manufacturer's. But the streams won't, not even on the WiFi-enabled iPhone and iPod Touch models. Napster's servers transmit music in the Flash format, which Apple doesn't support (yet) on its portables. But it seems certain that Flash will come to those devices. In the meantime, Napster might engineer its way around that problem by developing a customized application for those devices, as streaming radio services Slacker and Pandora have done. "That’s something we’re constantly evaluating and looking at," Napster Chief Operating Officer Christopher Allen said, in carefully noncommital fashion.
Second, consumers seem to have a collector's mentality about music that they don't have about other forms of entertainment. They happily pay for access to television, movies and video games, but they want to own songs. Go figure. The new Napster offer obscures that aspect of the service, framing the offer more like one of the old music clubs -- a business model that the music industry has jettisoned. On the plus side, Napster's purchase requirement isn't far out of line with the U.S. average. Nielsen SoundScan's statistics suggest that U.S. households bought about 6 billion tracks in 2008 (1 billion as singles, the rest via 535 million album sales). That's roughly 60 per household per year. Of course, most songs are bought by a relatively small percentage of consumers, so take the average numbers with a grain of salt.
Finally, the service may be a bit ahead of its time. The era of ubiquitous Internet connectivity, everywhere and on every device, is coming. When it arrives, an online jukebox-based service such as Napster's will look like genius. Until it does, though, it looks more like an effort to boost demand for the Internet-ready TVs, set-top boxes and other gadgets that Napster's owner, Best Buy, is so eager to sell.
I don't mean to be a killjoy. Give Napster credit for pushing its partners into yet another new business model. The major record companies' dream of extracting $7 to $10 a month from millions of customers seems even more quixotic today than when Roxio relaunched Pressplay as Napster in 2003. With the exception of Microsoft, the big tech companies best equipped to drive subscription music services to mass adoption have instead abandoned them. Napster's subscriptions slid from 750,000 in late 2007 to 700,000 in October 2008, when it was acquired by Best Buy (it hasn't disclosed them since). Rhapsody's subscriber base has grown over the past year, hitting 800,000 at the end of March, but its increases have been matched by declines at co-owner RealNetwork's premium online radio service. In short, the audience for DRM-dependent subscription music services appears to have peaked. It was past time for Napster to try something else.
-- Jon Healey