Subs get gloomy, Napster losses climb

Subscription-based music services lack that essential magic touch, with consumers abandoning them in droves – and Napster particularly hard hit.

Napster admitted last night that the number of subscribers to its service fell between April and May by 52,000 to 708,000. The company’s net loss grew 2% to $4.38 million.

Perhaps the only successful subs model in operation right now comes from eMusic. Unlike Napster, where most tracks are shrouded in DRM, eMusic’s entire four million track catalogue is available for purchase DM-free.

“The introduction of MP3s into our line-up has created positive trends for Napster, with increases to visitation and user engagement,” said Napster chairman and chief executive Chris Gorog.

He expects some recovery on strength of the company’s a la carte DRM-free MP3 sales model – though it’s going to have to play catch-up with competing services, now it has established itself as a subs service.

In late May, Napster announced to the world that it was adopting an a la carte, DRM-free mp3 sales model and moving away from away all-you-can-eat subscriptions.

Jupiter Research analyst Mark Mulligan has a prescription for the slowly fading firm: “Things will start getting really messy for premium subscriptions when the free offerings like Comes With Music arrive giving at least as much as premium subscriptions (sometimes more) but for free. I’ve said it before and I’ll say it again, premium subscriptions need to be 100% DRM free to have a viable future. Sure, they’ll have to take 6 or 12 months payment upfront to protect themselves from abuse, but if they don’t it will be the rest of the industry that abuses them.”

Napster has one other string to its bow – Napster Mobile. Gorog observed: “The roll out of Napster Mobile is driving forward and Napster compatible handsets will expand by millions of new units in the coming months. We expect that Napster Mobile will make the most significant contribution to our growth in fiscal 2009 bolstered by the integration of MP3 sales into our product line-up.”

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