Slashdot Mirror
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?"
it means they need napster alive to be playable?
SHE does throw dice.
>
Just to kill two birds with one stone, I'll probably load them on Zip Disks. That'll consolidate all my unused, overpriced media into one small place.
"Is it time to figure out what to do when your Napster WMA files go unsupported after Napster 2 dies?"
Yes, it is. Here's what you do: buy an iPod, use iTunes, and try to keep remembering that you should have just done that in the first place.
I remember the days, not so long ago, when *any* serious business was loss making. That's not cool any more?
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.
Apple don't mind because they drive hardware sales with it, and the lossy business model will drive off competitors.
The questions for me are: how long can the music industry survive when it can't even make the Internet a cost-effective channel for distribution? And what will happen than?
Ceci n'est pas une signature
Don't you think it's a bit early predicting the demise of Napster? They lost money, sure, but they just launched. It costs a lot of money to launch a business. You claim that their model doesn't generate revenue (and I think you may mean profits, not revenue) but I don't see where in the article that claim is validated. Add to that the fact that the article mentions they are restructuring to cover the costs and this post is a non-story.
Support the First Amendment. Read at -1
It could be that they're absorbing a financial hit now so that 3 years from now, when brick-and-mortar stores vanish, they have brand awareness and at least some following among consumers. Besides having to compete w/ iTMS, Napster's problem is that they need something to distinguish themselves from the rest of the pack. As Napster II has discovered, brand awareness isn't always enough: it sure as hell didn't work for them his time around!
Honestly are you surprised Napster is failing? Napster was one of the first victims of the RIAA's war against music swapping online. The average person's recollection of Napster is "Oh that music software that got shutdown." It's hard to shake that image, especially with Joe Smoe.
Besides look at Apple... They're Itunes service has caught on with the Non-Computer-Nerd as well because Apple has been able to market it as the Cool / Easy to use music service.
Hell even my mom could use I-tunes.
Here's what I don't understand: Presumably, at a large cut of $1/song the record companies are spinning a nice profit. Otherwise, why would they be joining iTunes/Napster/everyone else?
/james
Now, if the vendors can't break even, why doesn't a record company (or, say, the RIAA itself) buy an 'unprofitable' online vendor and continue merrily selling songs - sure, the service itself costs money to run, but 100% of the money goes to the label. Is doing this stuff so expensive that it actually costs them more than $1 to let you download a song?
I remember that Napster belonged to Bertelsmann/BMG before, but apparently not now. Hmm.
I don't know whether Napster's DRM'ed WMA need it to work - I'd guess they just need Windows Media to stick around. But that's the whole problem with DRM - sure, it's around now, but what about 20 years down the line? 50? 100? The RIAA and it's ilk want DRM to become the norm for all media - I don't know why the archaeologists aren?t complaining more.
It doesn't say why the are running at a loss.
Is it all the money they invested in creating the new software, paying up-front fees to labels, launch advertising, etc?
Its quite possible that they have only lost money due to once time investments, while they are making a profit on the actual selling of music. In which case, given a year they'll start turning a decent profit.
I don't know about you, but I don't sit infront of my _radio_ waiting for them to play my favorite song. and on another note... you said "jazzed-up". square...
Most of the songs I look for on Napster, they just don't sell (not in their catalog). So it's off to Amazon or the CD store or a used music place.
Don't blame Durga. I voted for Centauri.
And even if it does fail, that need not be indicative of the viability (or lack thereof) of the whole market. It might just be that they have a bad business model.
Apple's iTunes and iPod provide synergy with each other but iTunes limits itself to only those with iPods (or effectively does, since converting from AAC to MP3 to use with other players is a pain). Nice for them in the niche market, but a limiter in the absolute sense.
I think Napster2's problem, and what will limit iTunes even within the iPod market, is simply how much the stuff costs relative to physical media. I know that many people, myself included, aren't really willing to pay $10+ for only the bits when the (higher quality) physical media is similarly priced. That's just a bad deal, and that's why of the 700+ albums I have in MP3 format every single one of them came from a CD. If you want to give me less, you have to charge less; think $.50 a track, $5 an album. I'd do that.
I don't really think the WMA format is limiting them, seeing as the only player currently on the market that doesn't support that is the iPod (excepting, of course, the first generation MP3 players; they all did by the 2nd generation, quite a coup for Microsoft if you ask me). Though, honestly, I'd prefer not to use either AAC or WMA -- unless, again, they give me even more of a price break for providing the stuff in a locked format. At $.25 a track, $2.50 an album, I'd do that. At those prices I can afford to buy again to migrate.
But I don't see those prices coming down until the record industry screws up CD media to the point where most people won't buy it. Moreover, the record industry may kill their own online sales by offering CDs with both raw tracks and WMA encoded tracks, something they appear to be doing.
jim frost
jimf@frostbytes.com
At the beginning Microsoft did not generate revenue. No pure software company did. It was IBM, a hardware vendor, who helped Microsoft to come up. So they did for Oracle (at eraly days of v5). So, yes, hardware vendors are now getting online music to work. But that only until people stop afraiding to download music. After that: a big part of RIAA revenue will go online (with RIAA participation or without). Then Online music will be self-efficient enough to live without hardware vendors.
Less is more !
iTunes (small 'i', big 'T', no hyphen) is an application, one that runs on Windows and Mac OS X.
The iTunes Music Store (iTMS) is the web service. (Plenty of us use the former without the latter -- here in Europe, iTMS isn't even available...)
And, while I'm here, a related point that also causes confusion: 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.
Right, now I've got that off my chest... Did anyone seriously think that people would be fooled by the Napster name? That they wouldn't realise it was a completely different service from a completely different company? I hate to rehash old jokes, but it does look rather like:
Ceterum censeo subscriptionem esse delendam.
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.
I hadn't known there were so many idiots in the world until I started using the Internet -Stanislaw Lem
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.
And what if the licence includes details on your HD as well?
The great problem (read: opportunity) with music is that supply doesn't meet demand: I'm sick of my music collection, i want to find new stuff, but it's really hard because you can't search for what you don't know exists.
If i were the RIAA or one of its licensed resellers (e.g., Apple, Napster, Tower Records), i would provide people with their own personalized Internet radio station:
You launch the application, and they start streaming you some music. If you like it, you give it a thumbs-up. If you don't, you give it a thumbs-down (and probably skip to the next song). Pretty soon they've built up a profile for you and can search their database for other people with your tastes. You're discovering all sorts of new music that you never would have heard of.
But it's just a stream -- you can't save the songs and listen to them anytime you want. Unless you click "Buy this song", in which case the MP3 is saved to your hard drive. Perhaps you could even recommend songs to friends.
Maybe the radio station could be subscription-based, but i'd run it as a loss-leader.
There. That'll increase music sales tenfold. As a nice side-effect, little upstart bands could make it big (or simply make enough to support themselves) without having to get "discovered" by an "insider".
--
Mod up a post Rob doesn't like and you'll never mod again
While everyone hoots and honks about the DRM on Napster/Microsoft/Evil Company X, isn't it also true that those nice-guys-in-turtlenecks at iApple have also put iDRM on iTunes? I mean, they have some sort of computer-locking mechanism, don't they, that means you can't just make copies of music you buy on-line but rather have to use it on a restricted number of machines?
In a way, Apple might really hurt on-line music - they are funding themselves with iPod sales whilst breaking approximately even on music, so they don't really give a damn whether their pure music business model is competitive or realistic - it's a loss leader. Kinda makes it hard for others to break into the market, and makes it hard for anyone to buck the RIAA's royalty harness if Apple's gonna sit there and pump millions of dollars in royalties directly into the studio's veins. I feel a little more skepticism is in order, and a little less of people writing iT|\/|s or whatever the hell that stupid thing is.
I believe the difference in business model is this:
Napster
-------
1. Set up music system with unrealistic price structure due to being the RIAA's gimp
2. ???
3. Loss!
Apple
-----
1. Set up music system with unrealistic price structure due to being the RIAA's gimp but wear black turtleneck and pretend to be 'the good guy'
2. ???
3. Profit!
Read Pynchon.
You all need to keep one simple fact of business in mind.
Very few new businesses (and this is a new business, because about all that was kept from the original Napster was the name) make a profit in their first two to three *years*. A great many of them take 5 years to show a profit.
So why is everyone acting so surprised that Napster isn't making a profit after mere months? Oh yeah...that's right...this is Slashdot...we don't let little things like "reality" get in the way of a hyping up a story where none really exisits...
I want a new quote. One that won't spill. One that don't cost too much. Or come in a pill.
(1) The medium is often all that's left, such as in the case of much of my early jazz. Back in the days when copyright was time-limited, often the masters would be lost. And with "ephemera", or material that just wasn't consistently popular, there isn't a financial incentive to ensure that this doesn't happen. That's why the like of the Prelinger archives are so important.
(2) I would like to buy my media once, and then use it forever (well, until my death). I have a large collection of LPs that I never listen to any more, and have re-bought many on CD. I don't want to repeat that. Avoiding it is possible now, particularly with digital media. The oldest files on my current laptop date from the mid-eighties - they started out on 5.25", moved to 3.5", a double-height 10mb Winchester, over many null modem cables, later CDRs, ethernet and WiFi, but they are still the same files! My music can now do the same - it's currently residing on a 670gb Shuttle box in my living room, but I'm sure that will not be it's final resting place.
DRM prevents all of this.
---
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:
.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
Balance Cost
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.
You are right. The iPod presently allows him to subsidize his music store, to the benefit of all parties involved. If his strategy works, most other music stores will go out of business due to the unsustainable business model, and then he'll go back to the labels.
For an idea of how this will work, consider his contract with Disney over Pixar. Disney got 50% of revenues, got sequel rights, got merchandising rights and all sorts of other stuff.
When he signs a new distribition contract, odds are that the new distributor will get 10% of revenues, no sequel rights and merchandising rights split.
That's the difference between a venture capital investment that's basically a gamble on everyone's part, and the closest thing to a sure thing.
I'm sure his negotiations to renew iTunes Music Store contracts will be very similar, and he will get similar results: A bigger share of the pie in return for a proven success.
I don't think anyone has ever accused Steve Jobs of being a dummy.
Or a poor negotiator.
D
Wow, a business loses money in its first three months of launch. News at 11. They also say:
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.
He's not talking about some kid 3 or 4 generations down the line blasting Led Zeppelin in his bedroom. He's talking about scientists who may try to understand the long-since-fallen nation of the USA.
The vast majority of information regarding any time period tends to be tainted by the powers-that-be at the time (revisionist history) or lost due to sparsity. Should all of present day media be shackled with such short-lived technologies, then there would be nothing for those scientists to uncover that might paint a clearer picture of this era.
The problem with most of the perspectives of the "producers" and the politicians they manipulate is they assume the world of today will continue with only slight changes over time. History shows a much different perspective - ALL societies that have ever been before have fallen. Some spanned decades, some (as our present) evolved over centuries, some (Ancient Egypt comes to mind) endured for many thousands of years. All of them eventually fell (via war or other catastrophe) and after a period of disorder, or outright chaos, another social order built up in their place (with most of what was gone forever).
Considering the growing disparity between the wealthy and those in poverty today - and the increasing attempts to cement control by the former combined with the rapidly growing numbers in the latter, shows just how volatile our society is. How much longer until those once called Citizens, now called Consumers, are finally labeled with the inevitable Peasant. How long after that before the peasants revolt and destroy all that's been hoarded by the wealthy. There is absolutely no guarantee that the USA will maintain it's own social order, let alone the current "New World Order" as described by the first President Bush.
I don't wish to spark a left vs. right debate on today's social state. Despite what both conservatives and liberals claim are the causes and solutions to such ills, they do presently exist. The longer they persist, the longer the risk. I do not advocate any such uprising, I do not predict any such revolt, I simple mention that historically speaking - the risk exists. Should our present society fall into chaos, and most of what we've accomplished reduced to ashes and dust, only fragments of what once was will remain. If these fragments are useless due to DRM, there will be nothing truly left. That is what the original poster was asking - Why aren't archaeologists (and other scientists) speaking up about this risk?
I AM, therefore I THINK!
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.
The Right Reverend K. Reid Wightman,