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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?"
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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.
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>
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!
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.
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.
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.
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
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".
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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
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1. Set up music system with unrealistic price structure due to being the RIAA's gimp
2. ???
3. Loss!
Apple
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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.