Subscription Survivor? Napster Tries for Rebirth

Service Continues to Rely on Members; Innovates in Effort to Chase After iTunes

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NEW YORK ( -- Maybe cats really do have nine lives.

At least that's the hope at Napster, the file-sharing service identified by its headphone-wearing feline logo. It's trying for a rebirth -- again -- despite being outdistanced by Apple's iTunes, which accounts for 80% of legal downloads, and competition from powerful new contenders -- Microsoft's Zune music player with its accompanying download service, along with Universal Music Group's ad-supported free-download service, SpiralFrog.
Napster CEO Chris Gorog wouldn't rule out a sale of the company, but the company is hoping advertising helps it land on its feet.
Napster CEO Chris Gorog wouldn't rule out a sale of the company, but the company is hoping advertising helps it land on its feet. Credit: T.J. Crume

Possible sale
With its subscriber base falling 7% in its fiscal first quarter ended June 30, the situation is dire enough that early this month Napster CEO Chris Gorog wouldn't rule out a sale of the company.

But first, Napster's going to try to land on its feet with the help of advertising.

It's battling back with a new business model and a divide-and-conquer ad-sales strategy and mobile-distribution plan captained by industry vets: Former IGN Entertainment sales head Evan Cowitt, VP-advertising sales, Western U.S., and Mike Owen, director-ad sales, Eastern U.S., based in New York.

Samsung partnership
Under Napster's traditional model, similar to RealNetworks' Rhapsody music service and AOL's Music Now, registered members can listen to any track in its catalog up to three times for free. Members can then purchase the tracks a la carte for 99 cents, or become a Napster To Go subscriber for $14.95 a month and listen as often as they like. (Like rival services, once Napster subscribers stop paying their monthly fees, they lose access to all the music that they've already amassed.)

Since May, Napster has been pushing a free web-based music-listening service, allowing consumers to listen to as many as five tracks free while they view advertising. From opposite coasts Messrs. Cowitt and Owen will lead Napster's in-house ad-sales team to peddle integrated programs on the service. The team is working with advertisers to tailor campaigns through sponsored features, including custom playlists, co-branded music players and Flash-in-Flash video.

For instance, the service is helping Samsung bolster its sponsorship of the NFL by creating an area on the Samsung website featuring players' favorite songs on game days. "Each week of the season, the site will feature a different player's personal playlist that fans can listen to for free through a co-branded Flash player provided by Napster," Napster President Brad Duea said.

Other deals
Other partners include Walt Disney Studios and sibling Buena Vista Home Entertainment, MSN Rockstar, Toshiba, Maxell and the U.S. Navy. Napster also inked a partnership with Winstar Interactive, which is now its national ad-sales representative, for smaller deals. And it's gone mobile, striking a deal last month with Suncom Wireless to sell $2 tracks over the carrier's network.

The competition has to give Napster, which still gets 80% of its revenue from subscription, some pause. "They have to be worried about everybody," said Mike McGuire, VP-research at analyst Gartner. "The subscription model is harder to sell; getting people to pay a monthly fee is more of a commitment than buying a few songs on iTunes." He added: "Advertising is only going to get them so far; they still depend on subscriptions mostly."

Jupiter Research analyst David Card said SpiralFrog, which allows users to save downloaded music as long as they visit its site once a month to watch ads, might ultimately prove good for Napster. (Universal receives an upfront payment from the service and a portion of the ad revenue.)

"If the ad model is successful, that might be the best thing for Napster and Yahoo because they actually have a sales force to place advertising," he said. SpiralFrog so far has partnered only with Universal, he said. "You can't go to market with one label, even if it's the biggest."

5% of subscription market
Napster had accumulated a total paid-subscriber base of 512,000 as of June 30, including 4,000 university-paid subscriptions. Excluding university, the number of paid subscribers grew 26% year-over-year. At the moment, that amounts to about 5% of the subscription market, according to NPD Group, ranking Napster third behind Apple's iTunes, with more than 69%, and eMusic with 12%, but ahead of RealNetworks' Rhapsody and RealPlayer services, with about 4% of the market.

Since the launch of the free service in May, has been receiving about 3 million unique visitors a month and averaging more than 60 million page views. Users have been spending about 20 minutes on the site per visit and, in total, streaming more than half a million songs per day.

But, say analysts, all the page views in the world might not save Napster. "It will be interesting to see how much revenue they can get from advertising," Mr. Card said. "But they're still going to live and die by subscriptions."
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