Napster Giving Away Free Hardware With Subscription

[Jason Dunn]

<div class='os_post_top_link'><a href='http://news.com.com/Napster+to+give+away+music+players/2100-1027_3-5236933.html?tag=nefd.top' target='_blank'>http://news.com.com/Napster+to+give+away+music+players/2100-1027_3-5236933.html?tag=nefd.top</a><br /><br /></div><i>"Napster, which was transformed into a legal service after turning the music industry on its ear with an unauthorized song-swapping platform, is now giving away MP3 devices to anyone who subscribes for a full year. On its Web site, Napster said it would give consumers a Rio Chiba Sport portable music device, valued at about $130, if they sign up for the subscription, which is valued at $119.40. The device features 128MB of storage capacity and includes a stopwatch, sports headphones and an armband."</i><br /><br />We knew this would happen eventually, but personally I wasn't expecting it until the buying season this winter. The premise is pretty simple: the real money to be made is in monthly subscriptions, and if you need to give someone a free MP3 player to get them to sign up, you'll recoup your costs on that player within the first few months. The player they're giving away with the year-long subscription is the <a href="http://www.digitalnetworksna.com/shop/_templates/item_main_Rio.asp?model=216&cat=53">Rio Chiba</a>, a 128 MB player with an SD slot for expansion. Sure, it's no Dell DJ, but for most people it would be suitable (although you can't cram much music into 128 MB). Want a hard drive-based player? For $80 you can get a <a href="http://www.digitalnetworksna.com/shop/_templates/item_main_Rio.asp?model=219&cat=53">Rio Nitrus</a> which features a 1.5 GB hard drive.<br /><br />I know that everyone is basking in Apple's market success, but I firmly believe they have the market dynamics backwards: they're using iTunes as a loss-leader to sell iPods, whereas Napster is doing it the right way: taking a loss on the hardware, but making money in the long run through a music subscription. Your mobile phone carrier doesn't lose money on their monthly service plans in order to make money when you buy an expensive phone - they subsidize the cost of the phone through profitable monthly service fees. Napster won't see much success in the short term, but a year out I expect to see this model work quite well for them.

[Richard OKane]

I jumped on it this morning....only to find napster.ca isn't offering it :(
Hope that changes

[Felix Torres]

An interesting twist, for now, is that the music you get via the subscription won't play on the player they're subsidizing; for that, you have to *buy* the songs.

Not sure if its a bait-n-switch done on purpose or an oversight to be cleared up when the first Janus-capable players hit the market.

But the fact is that there is a big value proposition in getting subsidized hardware out into the hands of listeners, who will then be tied to your particular service.

I think we're seeing the beginning of the christmas of the "free" jukebox to mirror the Christmas of the "free PC" of a few years back.

One thing is certain, if Napster is doing it, the odds of MSN Music doing it go up.

[Jason Dunn]

An interesting twist, for now, is that the music you get via the subscription won't play on the player they're subsidizing; for that, you have to *buy* the songs.

Excellent point - I completely missed that. It does seem that they jumped the gun a little, doesn't it?

[Felix Torres]

An interesting twist, for now, is that the music you get via the subscription won't play on the player they're subsidizing; for that, you have to *buy* the songs.

Excellent point - I completely missed that. It does seem that they jumped the gun a little, doesn't it?

Unless its on purpose. :twisted:

When I first saw the news this morning, I thought Napster would be subsidizing their co-branded Napster-Samsung Yepp jukebox.
So it may be that the Chiba deal is a stalking horse for a bigger effort down the road.

Or maybe they just intend to tie you with the subscription to get you to buy songs to fill the player.

Could go either way, I guess.

[James Fee]

I read this as Napster jumping the shark. You can't make money selling tracks for 0.99 cents. Everything I have read says they make a couple cents on each track sold. Couple this with the fact that Roxio doesn't make hardware, how can they be making any money on this deal?

The money is in hardware until they can sell tracks for more money or the RIAA gives them a better cut. This has no affect on Apple at all, nor MSN. The clock is ticking on Napster and I doubt they will be able to withstand both MSN and iTunes by the end of next year.

So it may be that the Chiba deal is a stalking horse for a bigger effort down the road.
Now that I do think is the case. They must be able to make a better deal off of the Yepp than the Chiba.

Now if only Apple were to offer the 60gb iPod for free..... :wink:

[Felix Torres]

I read this as Napster jumping the shark. You can't make money selling tracks for 0.99 cents. Everything I have read says they make a couple cents on each track sold. Couple this with the fact that Roxio doesn't make hardware, how can they be making any money on this deal?

The money is in hardware until they can sell tracks for more money or the RIAA gives them a better cut. This has no affect on Apple at all, nor MSN. The clock is ticking on Napster and I doubt they will be able to withstand both MSN and iTunes by the end of next year.

So it may be that the Chiba deal is a stalking horse for a bigger effort down the road.
Now that I do think is the case. They must be able to make a better deal off of the Yepp than the Chiba.

Now if only Apple were to offer the 60gb iPod for free..... :wink:

Dunno, but do keep in mind that NAPSTER's primary business is the subscriptions; steady, predictable monthly revenue.
Not the d/ls.

As such, iTunes isn't much of a competitor to NAPSTER.
After all, NAPSTER doesn't do AAC, so POD-people are not likely to be NAPSTER customers. Similarly, the POD doesn't play the music NAPSTER provides.
The real competitors to NAPSTER are RHAPSODY and MUSICMATCH, as all three have subscription services, all three target the non-pod market, and all three support the dozens of non-pod players on the market.

In that company, NAPSTER is the only one with a co-branded player (while Musicmatch has a deal with DELL its not co-branded), NAPSTER is the first to go to europe (I think), and NAPSTER is the first with subsidized hardware.

NAPSTER has a client for MediaCenter PCs to stream subscription music to the living room, much like MusicMatch, and it allows unlimited music playback from their catalog, much like Rhapsody. Rhapsody is a bit more expensive but it gives you a couple of CDs worth of D/ls for free per month so its comparable.

iTunes just sells AAC songs.

So there really is no overlap in the marketplace other than the fact that both involve the listening of music.

MSN music?
We'll have to see where MS chooses to come in.
For now MS merely has the highest music-related portal traffic on the web, hard to believe though that may be, and competes more with AOL and Yahoo than NAPSTER.

As for how NAPSTER can make money on this, well, there is the fact that the CHIBA and NITRUS are both end-of-life products about to be replaced.

1- The last time RIO replaced their FLASH-based players, the RIO 800 got as low as $40. Retail. No rebates.

2- The NITRUS can be found at PC MALL for $120 (refurbished) whereas NAPSTER has it for $80 so, again, the difference is about $40.

So, best bet is that NAPSTER is paying no more than $40 to get the customers to sign up for the $120 one-year subscription. That is $80 up-front cash they're making on each CHIBA or NITRUS.

As to how profitable that may be, I have no idea simply because I have seen no published reports on the rates the labels charge for subscription services. What *has* been published are the rates for Internet radio which are a few tenths of a cent per song per listener. That, and the fact that NAPSTER's euro-competitor streams songs at a cent per song suggests that the profits in the subscriptions are substantially higher than than the few cents a one-time d/l sale might bring.

Which makes sense since d/ls are one night stands whereas subscriptions are more of a relationship thing. :-)

Its the difference between CD sales and radio.

With a subscription you have a radio station where you are the dj.
You set the playlist.
You can have 24-hrs a day Elvis or 24 hrs a day of bar bands.
Or anything you choose.
Its the ultimate in narrowcasting radio.

And its a business that is only now starting to become viable, with the arrival of the new Janus-enabled players. We may not have much longer to wait: Somewhere I heard August 9 as the target date for what may be the first of the next generation players, the Rio Zen Touch.

So we're back at the two options:

NAPSTER may be using the players as placeholders for a promotion to follow, using the Janus-enabled players.

or

NAPSTER may be taking advantage of liquidation prices on older hardware to get people to try out the subscription model in the hopes they'll discover it is radio, not CDs.

Heck, maybe its both.