Month: September

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There has been a lot of speculation as to why Best Buy purchased the struggling Napster for $121 million. The truth is that Best Buy is using the acquisition as a part of a broader platform to offer digital content and to leverage its market share in consumer electronics by bundling services that bring in recurring monthly revenue. They have already done this over the past few years with services like TiVo, DirecTV, and XM Radio. With Napster, Best Buy can persuade makers of consumer electronics like stereos, TVs, and computers to embed the service in their products in return for better shelf space and promotional support. They already have a lot of leverage in this area. Best Buy also may expand the platform beyond music, to movies and other digital content. An area to watch is mobile phones. The store recently opened new Mobile Shops and is experiencing increased mobile phone sales by 50%. If Best Buy increases its market share in this sector, it could wield the same leverage over mobile phone manufacturers and wireless operators to include Napster mobile services. Major labels are very excited about the acquisition and see it as a great way to drive sales in new ways on a lot of devices.

Month: September

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Napster is trying to be optimistic about its business and future. They have converted to a web-based system, a library of downloads of DRM-free tracks, and five straight quarters of positive cash flow. But investors and analysts are not so sure about the success of the company. Stocks hit an all-time low and subscriber levels have dropped 7% in the last quarter. The business's first quarter net loss also widened from the same time last year and a group of dissident investors are battling to gain seats on the board. Napster's shrunken market capital makes it an easy target for a takeover as well. The company's efforts to convince consumers that a subscription-based service is the way to go. They are also facing competition from Rhapsody, a venture between two much larger companies (RealNetworks and MTV), as well as free streaming sites imeem and Last.fm. With their focus on DRM-free sales and mobile distribution, they have seen some encouraging figures from early results. But time still may be running out for Napster.

Month: July

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Rhapsody and Napster are hoping their mobile phone-compatible services will change their fortunes in the music subscription business, but that has yet to be seen. The downloading of music has dwarfed the subscription service recently. Napster's partnership with AT&T since late 2006 has seen little change in the company's subscriber base and the service is only available with other-the-air downloads on one phone model, while the side-loading service is available on just a few others. Napster is also one of several music services available for AT&T phones. This is where Rhapsody and Verizon have the upper hand. Rhapsody is the default music service for Verizon phones and is compatible with ten kinds of phones. Verizon can also add the cost of the subscription to their phone bill, something AT&T has not been able to do. Verizon is far ahead of its rivals and is working to transform Rhapsody's business. The problem is that the music subscription business has always had more potential than success. Rhapsody is great for sophisticated music lovers, but hasn't had mass-marketing appeal yet.

Month: June

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The main competitors for Apple in the realm of digital music all meet the prerequisites for existing customers, flexible pricing and business models, and willingness to invest in new technologies. The key problem that Amazon, Napster, and Wal-Mart have in their efforts to compete with Apple is their marketing. Especially with TV ads, these three companies seem to have non-existent promotional strategies for their DRM-free digital music services. Apple has spent $400 million since 2003 on their successful iPod + iTunes TV ads, along with more on billboard and print ads. Napster has cut down advertising costs since their Super Bowl ad due to low quarterly earnings in an effort to cut their net loss. Amazon and Wal-Mart, who both had billions in revenue last year, have still shown next to no advertising for their services. Amazon has a lone ad with Pepsi that advertises a point system where consumers can purchase anything from Amazon with Pepsi points, not just music, that has been running since February. Amazon's system is also still in the beta format, so it could be waiting for a broadening of its service. Wal-Mart has not advertised their service at all and has been in the midst of a transition to the DRM-free model with the addition of WMG content. It is possible there are campaigns waiting in the wings for these companies, but nothing has come about as of yet. A group effort from these companies and labels alike will be necessary to compete with Apple's chokehold on the digital music world. DRM-free music service-providing companies need to increase their messaging and record labels need to make artists available for promotional purposes in these new marketing campaigns.

Month: May

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Since many music services have switched to MP3 and DRM-free downloads, not much has changed in the market still. Napster recently converted its entire library to unprotected MP3 files and EMI became the first major label to embrace DRM-free music. Still, not enough change has been seen in the overall market. iTunes is still on the top, by a huge margin. The market of downloading is not increasing on a year-to-year basis. Some companies have seen small share increases, but no individual or collective of companies have made any sort of move towards rivaling Apple. Still, this is only been recent changes in events. Maybe in time DRM-free will catch on.