Napster Business Model Not Generating Revenue

An anonymous reader writes "We all know that Apple generates revenue from iTMS via hardware sales. How the hell can pureplay music stores like Napster generate revenue enough to even stay alive? They don't. Is this the first indication of the bubble bursting? Is it time to figure out what to do when your Napster WMA files go unsupported after Napster 2 dies?"

Comments

Re:unsupported?

[Anonymous Coward]

It means if Napster goes away and you lose your file, you're screwed. You can't get it again even though you paid for it.

Re:unsupported?

[blowdart]

It depends on how they coded the license, but in all probability no (unless they turned the backup license facility off and you need to recover your licenses after a hard disk crash).

Windows Media licenses can be permanent, time limited or limited by number of plays. From the files I've seen Napster licenses are permanent. So if Napster dies, your licenses still work.

But hey, lets not let facts enter into this <g>

Re:Duh...

[Mononoke]

Any attempt to sell digital music while keeping the current cost model (where a huge part of the proceeds go to feeding record company structures) is going to be a loser.

That "huge part of the proceeds" goes to pay the debts of the musicians who created the music in the first place, debts the musicians agreed to when they signed the contract.

No, it's not perfect, but it's what we've got.

Re:unsupported?

[Rip!ey]

It means if Napster goes away and you lose your file, you're screwed. You can't get it again even though you paid for it.

If that happens then your screwed anyway, even if Napster are still around and turning a healthy profit, something I'd personally like to see. Read the licence agreement.

I quote: "If you have Purchased Tracks, it is your responsibility not to lose, destroy or damage them. Napster shall have no liability to you in the event of any such loss, destruction, or damage."

But since CD burners are mainstream now, and your allowed to burn each track to a CD up to five times, it's not too much to ask someone to take responsibility for looking after what they buy.

Re:Figure this out

[tgibbs]

As long as Apple survives, it seems likely that your iTunes songs will continue to be playable and portable. Of course, people have been predicting Apple's imminent demise for over a decade...

Worst case is you burn your stuff to disk and re-rip to mp3 or whatever the current DRM-free format is at the time (or use one of the shareware utilities that does the equivalent without the need for an actual disk), at the price of a small loss in quality.

Re: Figure this out

[gidds]

The iPod does play other things too, you know. Sure, it'll play FairPlay-protected AACs from the iTunes Music Store. But it'll also play unencrypted AACs, MP3s, &c too. I've got many tens of GB of AACs I've ripped myself, and not a hint of DRM anywhere.

Sure, hate iPods if you want, that's your prerogative. But don't hate 'em thinking they only play DRM-ed files, because that's simply not true. They're a good deal more open than most others, in fact -- AAC is an open standard (it's the audio layer of MPEG-4, just as MP3 is of MPEG-1; it's even from the same people), unlike WMA...

iTMS

[Kazymyr]

Apple makes 35 cents for each song they sell. Of course they have bandwidth costs to cover, and the whole developing costs, but given their stellar sales it's hardly fair to say that Apple only generates iTMS revenue through pushing hardware.

Re:It's not that great. (Probably a troll, but...)

[Radon Knight]

How come Apple cant seem to let you hear the whole sone but instead gives you 30 secs.

Because then people could listen to a single song streamed over the net and copy it to disk using a utility like Wiretap. If you could easily obtain a complete album in the time it takes to listen to it that would completely kill their business. Now, maybe 30 seconds isn't quite long enough, but it's not too bad and seems a reasonable compromise.

Re:unsupported?

[cyt0plas]

Under Windows Media Player 9, go "Tools, License Management". Shove it in a folder, and burn your license _and_ the WMA files to a CD. No more quality loss (beyond the existing WMA conversion loss).

Re:unsupported?

[Jarlsberg]

For the computer - but you can back up the licenses and transfer them to another computer. It's a bit of a hassle compared to non-DRM'd files, but it works well enough.

Re:How to make a fortune selling MP3s

[FsG]

First, you should know that the iRate radio already does exactly what you're describing.

Second, how will you ensure that this stream isn't diverted to somewhere else -- say, a hard drive? Once people start saving it, it's only a matter of time before their entire library is available on Kazaa. Programs such as StreamRipper32 already make it trivial to save shoutcast radio streams to mp3 files; I imagine this effect will be duplicated fairly quickly to save these streams.

Napster/iTunes economics

[Anonymous Coward]

This was written in May of 2003 with regard to the Apple iTune's financial model. The same financial model holds for Napster.
---

Date: Wed, 21 May 2003 09:29:24 -0700 (PDT)
Subject: Napster - any value in the brand?

I've been trying to figure out the breakdown on costs for iTunes, here's what I've got so far:
Balance Cost
.99
.29 .70 publishing rights & other payments to labels
.24 .05 Credit card transaction base fee
.21 .03 Credit card % of value fee
.16 .05 Fraud / charge back cost
.14 .02 Media delivery (bandwidth cost)
.09 .05 Hardware / infrastructure costs
.04 .05 Salaries & overhead

Even at 2,000,000 song sales, that's not a lot of remaining gross margin, like $80,000 over two weeks and I suspect it's declining as well.

The other way to look at this is that it's a loss-leader for iPods and other Apple hardware :-)

---

Over the summer Steve Jobs confirmed that iTunes is not currently and may never be a profitable service.

Napster is trying the university thing because it provides them with a fixed, recurring revenue stream. I wish them luck.

Re:Hold on...

[Meowing]

You claim that their model doesn't generate revenue (and I think you may mean profits, not revenue)

They meant revenue. Napster's revenues are listed as US$3.6 million for its first three months of operation. By comparison, the iTunes store topped a million in its first week, without the benefit of a holiday rush to get new, empty players into people's hands.

AAC is copyrighted and patented

[tepples]

the iTMS sells AAC files that have been wrapped in a FairPlay encryption wrapper. Plain AAC files are not encrypted or restricted in any way.

Plain AAC files have two copyrights and several patents on them. The two copyrights are the copyright in the musical work owned by a sheet music publisher and the copyright in the sound recording owned by a record label; they come into play whenever anybody redistributes a recording in AAC format phonorecords.

If you mean only technological restrictions, AAC has those as well. Without a decoder, you cannot play back AAC files, and it's a federal tort in the United States to distribute AAC encoders or decoders without paying the holders of patents that cover the methods that make up AAC.

Re: AAC is copyrighted and patented

[gidds]

Okay, they have no restrictions beyond those should be obvious to all ./ readers; no more than MP3 files have.

The point is that so many people assume that all AAC files are as restricted as the FairPlay-wrapped ones from the iTMS, and I think it's important to know that's not the case. Yes, AAC is a patented format, but so is MP3. Yes, AAC needs a suitable decoder, but so does MP3. Both are the audio layers from MPEG specifications (MP3 from MPEG-1, AAC from MPEG-4), and both are from Dolby/Fraunhofer. Both are published international standards. You can create your own AAC files, and play them wherever there's an AAC decoder, just like MP3.

Editors please RTFA

[lambadomy]

I don't normally get this annoyed by the blurbs by the editors, but Taco this time stretches it a ridiculous amount. All the article says is that Roxio spent a lot of money getting Napster ready, and launching it. First line of the article:

Napster-owner Roxio more than doubled its net losses year-on-year thanks mainly to increased spending on the relaunch of the music download service, which went live in October.

Wow, a business loses money in its first three months of launch. News at 11. They also say:

Roxio said in December that it expects to significantly reduce Napster-related spending as its moves away from the launch quarter.

While maybe we don't want to believe them and they won't reduce these costs, it seems pretty likely. So saying "they don't" make any money is patently ridiculous, we don't have anywhere near enough data or time invested.

Re:Figure this out

[Lehk228]

Xbox is easy as hell to develop for, it runs direct X and a win2k kernel, any Game made for X-box can be "ported" to PC for next to nothing, possibly even just a recompile, oh and the X-box controllers are really USB, just a proprietary cable. There are alot more experienced PC game programmers than GCN programmers, while PS2 has been around a bit longer and has the benifit of being #1 to draw developers

1/8" mini-plug to the rescue

[giminy]

Is it time to figure out what to do when your Napster WMA files go unsupported after Napster 2 dies?

Sure, use the age-old trick of defeating the copy-protection on your files: Get a 1/8" stereo mini-plug, and use it to loop from your audio to your microphone in. Then re-record all your music in a format that isn't crippled. You could even write a program to automate the process, although it would take as long to convert your files as your files are long in play time, unfortunately. But such is the nature of the analog 'last 1/2"' (distance between your sound card's audio out and audio in) solution.