So Napster is now selling 6 million DRM-free tracks for 99 cents each. What’s it like if you try to buy one? Glenn “Coolfer” Peoples visits the Napster store, and doesn’t seem likely to come back:
First impressions are important, and the web version of the store — which is available to non-subscribers — did not make a good first impression during my visit. I am not a Napster subscriber and did not install the Napster software application on my computer to test the better version.
The web version, which one assumes is supposed to poach customers from other download stores, does nothing to indicate MP3 shoppers will leave their current store of choice. It is light years behind iTunes and Amazon.com’s MP3 store. The mere existence of MP3 files and a wider breadth of catalogue do not make up for the disappointing quality of the actual store.
But for argument’s sake, let’s say Napster (NAPS) eventually gets it act together and creates a really great digital music store. What then? Then Napster is still screwed. Why? Because:
- There is zero evidence that DRM-free tracks are selling any better than downloads that have DRM.
- Even if DRM-free tracks do become more popular than tracks with DRM, it won’t change the economics of the digital download business: They’re awful for retailers, who are lucky to scrape a few pennies of profit from each 99 cent sale. That doesn’t matter to Apple (AAPL), who sells billions of tracks, and is really in the iPod/iPhone business. And it doesn’t matter to Amazon (AMZN), which is selling tracks as part of larger, long-term shift from physical media to digital, and can afford to lose a few bucks. But Napster doesn’t have any cushion.
- Napster’s core business remains its subscription business, which only grows when Napster throws a huge marketing push behind it. When it doesn’t (as in the past few quarters), it plods along. The best thing you can say about the DRM-free store is that it may help Napster lower churn slightly. But we don’t see how it increases subscription growth in any way: If you sign on for a Napster subscription, it’s because you like the idea of paying $13 a month for an all-you-can eat rental service that isn’t compatible with the iPod/iPhone/iTunes ecosystem. And this doesn’t change that.
We happen to think that the subscription model is a pretty good one, on both sides of the equation, but to date we’re in a very small minority on that one. And unless that changes very soon, we don’t see how Napster survives, DRM-free or not.