Napster: A brand buried by free music?
With Rhapsody buying Napster, the famous kitty-logoed brand may have used up its last life. Granted, the service bears no resemblance to the pioneering file-sharing network that pushed CD sales off a cliff a little more than a decade ago. In fact, it went legit long ago, only to struggle to gain a mainstream following in its new life as a subscription music service.
Here's the ironic thing. To the extent that "Napster" means anything to the average Internet user, it means "free." And thanks to Spotify and Facebook, free may be a necessary ingredient in any subscription service going forward. The current version of Napster, however, simply isn't competitive in that environment.
Napster has been languishing for some time, innovating more slowly than its rivals and shedding subscribers by the boatload. My colleague Ben Fritz cites an estimate by Gartner analyst Michael McGuire that the service has 200,000 to 300,000 subscribers, compared with 700,000 when Best Buy acquired it in 2008. Ouch.
The service was particularly lagging in social features. It didn't make even a token effort at Facebook integration, and was nowhere to be found last month when Facebook announced its "frictionless sharing" feature for media services.
Today, millions of Facebook users are seeing a steady stream of messages about their friends listening to this or that song on a music service that's not Napster. Most of the time the service is Spotify, which is so deeply integrated with Facebook, it requires people to have a Facebook account in order to sign up. Spotify also seems to be a fixture in the "Featured Music Service" section on Facebook users' new music profile pages.
Use of Spotify exploded in the wake of the Facebook announcement, as Evolver.fm pointed out. Part of it is the network effect -- more people around the world use Spotify than any other subscription music service, and with Facebook automatically sharing their activity with all their friends, that's a heavy amount of promotion. But it also helps, no doubt, that when people click on the "play" button next to the songs their friends have listened to on Spotify, they're invited to download Spotify's software and play the tracks for free.
Now that's frictionless sharing.
It's too early to tell whether the rush to Spotify will continue. It's also too early to tell whether Spotify will be able to persuade Facebook users to convert from its free tier to a paid version in sufficient quantity to pay its bills. Every music executive I've talked to says that neither Spotify nor any other music service seems to know how to generate enough money from advertisers to make a free tier work. (Video is a different story; the issue there is generating enough money from advertisers to satisfy the studios, which worry about free online video cannibalizing pay TV services.) If they don't persuade a goodly percentage of their subscribers to shell out $5 or more a month, they can't survive.
A more fundamental challenge for Rhapsody and its rivals has been the lack of public awareness about subscription services in general. The exposure from Facebook is helping on that front, although again it seems to be benefiting Spotify more than anyone else. And as a result, all the online services are feeling the heat to beef up their free offering. Their goal, as one executive put it, is to draw in the people who appreciate "the full value proposition" of a subscription service -- in other words, music fans who want more than the ability to play a song from an online jukebox from time to time. Those are the consumers who could be persuaded to spend $10 a month for a service that puts millions of songs at their fingertips, wherever they happen to be.
Rhapsody Chief Executive Jon Irwin said his company is buying Napster to increase its subscriber base. Assuming Napster users don't quit en masse, the acquisition should put Rhapsody over the 1-million-subscriber mark -- not a bad achievement, but not the goal line either. Here's hoping that Rhapsody retains one of Napster's best innovations: letting subscribers listen to an unlimited number of songs online for free in exchange for them buying about $5 worth of MP3s per month. The free streams don't work on mobile devices -- every music-on-demand service charges for that privilege. Still, it's a nice way to bring in fans accustomed to the oh-so-20th-century practice of acquiring a personal music collection, rather than just renting access to a vast jukebox in the cloud.
-- Jon Healey