Napster, Still Struggling, Puts Itself Up For Sale

from the shocking dept

Napster’s never been able to regain its cachet in the music-download business after going legit, despite a few different owners, so it’s hardly surprising to see the company essentially put itself up for sale. While the company’s CEO says there’s been a lot of interest in partnerships or joint ventures, Napster’s struggles illustrate the reality of the music download business as one where it’s awfully hard to make money. While Apple’s sold over a billion songs through the market-leading iTunes Music Store, those songs were loss leaders, intended to drive iPod sales and to lock users in to the device. The CEO also says that its new products are getting “traction” — but they don’t look to be helping the company turn a profit, and it said it’s losing paying subscribers as it promotes its free service. There’s nothing here, and nothing in the company’s history, to suggest it can be successful. Perhaps the best thing for the company and its shareholders is to grab whatever cash it can in a buyout, playing off the growing interest in mobile music download services by selling out to a company in the mobile space that can ditch the current Napster offerings and salvage its backend into something useful — with Ericsson, a company already partnered with Napster for mobile music, a prime candidate.

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Comments on “Napster, Still Struggling, Puts Itself Up For Sale”

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just ®idiculous says:

those songs were loss leaders

All the chatter posted by Techdirt contributors notwithstanding, Apple is not losing money on a $0.99 song, therefore it’s not a loss leader. The original source merely quotyed Jobs as saying “most” of the iTMS revenue goes to the music companies. You can call that aggressive pricing, thin margin, or brilliant. But in any event, Steve Jobs is shrewd and while he might have given concessions on the front end to music companies to bring them into the fold, you’re going to have to find data more recent than November 2003, if you want to continue top insist that iTMS is a loss leader. Don’t be disingenuous.

The obvious fact is that most consumers will purchase one iPod every few years, but can purchase many songs every month. The iTMS is much more akin to a subscription service than a loss leader.

Back on topic, Napster never had any customers, it had a many users. Suggestion to Napster: if you can figure out how to turn your many users of your free service into many paying customers, you should patent that.

Frist pots!

Anonymous Coward says:

Re: those songs were loss leaders

I’m sorry… Do you have a quote from the company on how much money they are making on it?

As I said the last time, APPLE said that iTMS was a loss leader. They (“He”) havent said anything about it since. In their financial filings they always lump iTMS figures into their iPod channel figures.

anonymous says:

Re: Re: those songs were loss leaders

I agree that Apple hasn’t come directly out and said that the iTunes store is profitable, but they did say this in their most recent 10-K filing with the SEC:

“Net sales of other music related products and services increased $269 million or 125% during the second quarter of 2006 and increased $583 million or 148% during the first six months of 2006 compared to the same periods in 2005. The increases were primarily due to increased net sales from the iTunes Music Store, iPod services and accessories, and the iPod Hi-Fi that was introduced in February 2006. The increase in sales from the iTunes Music Store relates to significant growth in U.S. sales and the expansion of the iTunes Music Store to 21 countries compared to 15 countries at March 26, 2005. The increased sales from the iTunes Music Store were also attributable to the introduction of video sales in October 2005.”

Anonymous Coward says:

Re: those songs were loss leaders

“you’re going to have to find data more recent than November 2003, if you want to continue top insist that iTMS is a loss leader. Don’t be disingenuous.”

The Economist, 6 July 2006:

Apple’s business model, however, turns this on its head. Apple makes its money from sales of the iPod, not sales of music; the printer, not the cartridge; the razor, not the blade. As Bill Shope, an equity analyst at JPMorgan, puts it, the music store is a “loss leader” that serves only to boost sales of the iPod. It is as if record stores existed only to sell record players.

Anonymous Coward says:

Re: Re: those songs were loss leaders

You have confused “free” with “Paid for by advertising” or “Paid for by leasing your computer to a Russian Mafia to be used in a zombie net”. Or perhaps you are confusing “Free” with “Paid for by gambling with lawsuits”.

That’s not really “Free”.

Now here’s another question thats a little more … sane.

Why would I buy something after I already gave it up, and realized I wasn’t missing anything?

just ®idiculous says:

The Economist, 6 July 2006

Thanks for the current reference. Perhaps I am being too picky, but Apple is not paying more than $0.99 per song, therefore iTMS is not a loss leader. The expression is wrongly applied to iTMS, although I will admit that the intention is the same because iTMS is obviously much work for Apple to generate razor thin profit.

But a tiny profit is not the same as a loss. And if every website and non-revenue-generating activity is called a “loss leader” then the phrase means nothing. A few analysts use the phrase “loss leader” one time, and it gets cannablized/repeated and taken as gospel…

AMP says:

Re: The Economist, 6 July 2006

There is a lot more that goes into the cost of running iTMS (or any business division for that matter) than what they pay for a product and what they sell it for.

Consideration has to be given to all operating costs and overhead involved, employees (fully burdened), cost and upkeep of iTMS, marketing and advertising etc. If iTMS is not paying for itself and turning a profit through the sale of music then it is being subsidized by another division within Apple (in this case the iPod) and is therefore a loss leader.

Now, I have no idea if iTMS is a loss leader or not, I can only go by what I hear. I have never looked at Apples financial reports. But there is simply more to calling something a loss leader, or not calling it a loss leader than “how much do they pay for materials and how much to they sell the product for.

just ®idiculous says:

iTMS - not losing money

While Apple keeps details close to the vest, iTMS was operating at “break-even” in 2005 and in the most recent quarter, iTMS “operated above break even in the March quarter.”

Transcript of Apple’s Q2 2006 Earnings Conference Call:

Call it what you will, but don’t call it a loss leader.

Personally, I would call it the cost of doing business and acquiring customers

Anonymous Coward says:

Re: iTMS - not losing money

Making break even (for a single quarter) is NOT making money. Considering apples unusually high margins on everyting else, this is DEFINTELY a loss leader. If a product line was only “Breaking even” it usually gets cancelled. Unless of course, its classified as a loss leader.

And APPLE classifies iTMS as a loss leader.

(BTW- what you call “the cost of doing business” other call “costs” and if the “costs” outweigh the revenue but have other significant benefits for the company (like customer acquisition), then the “product” is called a loss leader)

just ®idiculous says:

when has Apple called iTMS a loss leader?

Apple doesn’t refer to iTMS as a loss leader, because its not losing money. I’ve only seen the term used by journalists, analysts and bloggers, all of whom are either content to just repeat each other, or else too lazy to read the source/s and draw their own conclusions.

Even the Economist article referenced above, quotes a prominent Apple analyst, but it had to dig back to 2003 (when iTMS was only 2 years old) to find a quote that supports the ‘loss leader’ proposition – because that analyst’s more recent statements do not support the notion.

Anonymous Coward says:

Re: when has Apple called iTMS a loss leader?

Whats wrong with the referneces from 2003?

Apple called it a loss leader and said they hoped that eventually it would break even.

What part of this is causing you to struggle against?

Apple maintains the industries highest margins, and is a successful company. iTMS does not share those margins. iTMS is there to help maintain those margins in other products. Thats good enough to be a loss leader to me. Can’t you just accept that?

Anonymous Coward says:

i wish we had an individual report of the finiancial sistuation with itms.

and as stated before, just becuse you pay $xx for a product and charge $yy (where yy>xx) doesn’t mean you are making money. it means that you have $(yy-xx) dollars to run the business with. if the product consumes resources, i.e. server space, electricity there’s some money, and renting the physical space where the data is stored takes money too. people cost money. the workers who have to update the software, those who spend time on the phone with tech support or trying to get the content, the art designers, and programmers and what not…it all adds up.

AMP says:

Re: white flag

“While I do not agree that a low margin is equal to a loss” I agree, these are similar pricing strategies, however they do differ in that a low margin product is squeezing some profit out of the product. Again, I have no idea if iTMS is a loss leader or a low margin product. I think the posts have gotten caught up in semantics here. The term loss leader is only as black and white as is the companies book keeping practices. The bottom line is; loss leader or low margin product, iTMS is not making a lot of profit (high revenue probably, high profit probably not) and is used to bolster sales of the higher margin iPod. This seems to have worked well for Apple. Problem is, most music download sites don’t have their own MP3 player to sell, at least as far as I know (does Napster have a product line of it’s own? This is where partnering with a company like Ericsson would help, should they decide to follow the same business model. Now all they have to do is market the product/service as well as Apple has.

Brian Weatherley (profile) says:

Loss Leader

In marketing, a loss leader is an item that is sold below cost in an effort to stimulate other profitable sales. If we have no data on actual cost per song, it is difficult to say.

Loss leaders are an expense, just like advertising. If a company declares a product to be a loss leader, they are really the one in the best position to determine that.

I suppose close analysis of quarterly statements can determine if profit is generated from the direct sales of songs. But the cost of a product is the sum of all expenses involved in moving it. So for it to be above cost, and therefore not a “loss leader” one must take into consideration all expenses associated with the product.

Also keep in mind that some expenses remain generally static when compared to volume sales of a product. So there would also be a definite volume requirement for a certain product to meet before it becomes a “profitable” item.

Devin (user link) says:

iTunes might be a loss leader to Apple

Apple very well might consider iTunes to be a loss leader because Apple has always been incredibly strict one what products it will put to market. Rumor has (from at some point) it if the profit margin per product isn’t 40%.

Clearly an online music service that deals with the RIAA will never be able to achieve that market share. So Apple may just run iTunes as a ‘loss leader’ because it doesn’t live up to their strictly adhered to profit margins.

I think this is very likely to be the case. They’ve went on record and said that iTunes is making them money. They just didn’t say how much. I think this pretty clearly explains a lot of Apple’s actions.. for example

1) Why they won’t open iTunes to other devices.

2) That Apple is such a tightly ran company that their loss-leaders even make money.

They want to make Apple an indispensable company name in media. If their selling of TV Shows and movies takes off (boosts in quality will be required) people will start forgetting that Apple makes computers.

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