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.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
[ link to this | view in chronology ]
[ link to this | view in chronology ]
Re: those songs were loss leaders
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!
[ link to this | view in chronology ]
Re: Re: those songs were loss leaders
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.
[ link to this | view in chronology ]
Re: Re: Re: those songs were loss leaders
"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."
[ link to this | view in chronology ]
Re: Re: those songs were loss leaders
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.
[ link to this | view in chronology ]
Re: Re: those songs were loss leaders
[ link to this | view in chronology ]
Re: Re: Re: those songs were loss leaders
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?
[ link to this | view in chronology ]
Re: The Economist, 6 July 2006
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...
[ link to this | view in chronology ]
Re: Re: The Economist, 6 July 2006
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.
[ link to this | view in chronology ]
Re: Re: The Economist, 6 July 2006
[ link to this | view in chronology ]
iTMS - not losing money
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
[ link to this | view in chronology ]
Re: iTMS - not losing money
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)
[ link to this | view in chronology ]
the link
http://72.14.253.104/search?q=cache:dH2YReUdqlUJ:seekingalpha.com/article/9249+%22Profita bility+of+iTunes%22&hl=en&gl=us&ct=clnk&cd=1
[ link to this | view in chronology ]
[ link to this | view in chronology ]
when has Apple called iTMS a loss leader?
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.
[ link to this | view in chronology ]
Re: when has Apple called iTMS a loss leader?
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?
[ link to this | view in chronology ]
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.
[ link to this | view in chronology ]
white flag
[ link to this | view in chronology ]
Re: white flag
[ link to this | view in chronology ]
Re: white flag
Good day to you as well.
[ link to this | view in chronology ]
Loss Leader
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.
[ link to this | view in chronology ]
iTunes might be a loss leader to Apple
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.
[ link to this | view in chronology ]
[ link to this | view in chronology ]