August 9, 2004
Apple and Napster in the News
Following up on all the commotion about Real’s “Harmony“, Virgin Mega has filed suit against Apple in France for its use of FairPlay. I’m not exactly sure what claims they’re making – sounds like some sort of anti-trust issue.
In other news, Roxio has sold off everything except for its Napster division and in fact is going to change its name to Napster. Even though they’ve been behind iTunes in the downloads market and Rhapsody in the subscriptions market, they’re committed to this as-of-now relatively small market. Interesting.
PaidContent has some nice notes from the conference call today. Apparently, the Napster division had another losing quarter, but they’re projecting significant growth in Q3. So far, the gross margins on downloads are 10 percent, while they’re 40 percent for subscriptions. Growing the subscriptions market is imperative.
Given that, here’s what’s unclear to me: why would they want to charge more for the Janus enabled, “portable” subscriptions? I suppose they think that consumers will start buying into the subscription model soon and thus providing a low price is long run counterproductive. Moreover, portable subscriptions will take away from the people who’re buying today’s subscriptions and then purchasing individual tracks. But will the subscriptions market really grow so quickly? It seems to need a kick-start right now. I’m not sure that most people are going to want to pay spend between 11-20 for a portable subscription, when totalled over the course of a year that’s well over the average person’s spending on music (so is today’s regular 10 dollar subscription fee). Furthermore, by price discriminating and segmenting based on usage restrictions, consumers might grow even more frustrated with DRM offerings in general.
One thing to keep in mind: who knows what the royalty rates are for the portable subscriptions. Permanant downloads with download royalties via a subscription service spelled the death of E-music. I wonder what sort of compromise the labels made in this regard. Maybe they’re the reason why the portable subscription fee will be higher. Meanwhile, Canadian publisher agreements are supposedly holding back Napster venture up north.
According to Napster’s execs, the labels have cooperated with the discounted licensing to universities. As expected, university income is basically nothing. They’re just using the licenses to build the brand.
And now that Roxio/Napster is concentrating solely on digital music, what else might the brand be used for? They already have some tie-ins with hardware developers, but they may decide to go after that market even more as their focus shifts.
Filed by Derek Slater at 10:50 pm under General news
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